June 26, 2022
RBC ElementsTM: Fertilizer Insights
Potash from Belarus and Russia still limited, while N&P have returned
Our view: We think Belarusian and Russian potash exports remain severely impaired, while Russian nitrogen and phosphate shipments may have recovered to near pre-war levels. We expect Nutrien and Mosaic to continue benefiting from a tight potash market, with both companies increasing production in an elevated price environment. Importantly, this increased production would still fall short of the lost supply from Belarus and Russia, and the potash market should remain relatively tight for several years. For nitrogen and phosphate (impacting CF, MOS, and NTR), returning Russian exports have pressured prices during the mid-year seasonal lull, but markets still remain relatively tight, implying future sanctions relief may not result in easing conditions as Russian supply has already returned.
In collaboration with our RBC Elements team, we updated our work tracking fertilizer vessel loadings in the Baltic and Black Sea region, expanding our data analysis to include ports that handle a broader range of solid fertilizers — our March report focused on ports that export potash. The broader data capture allows us to gain insight into overall fertilizer exports from the region, including nitrogen and phosphate, in addition to our earlier analysis on potash exports from Belarus and Russia.
Belarusian and Russian potash exports remain heavily restricted, but Russian nitrogen and phosphate may have returned to pre-war levels: Overall Baltic and Black Sea fertilizer loading activity remains 15% below pre-war levels on a 4-week trailing basis, but the decline is primarily due to low activity at potash- dedicated ports. Excluding the potash-dedicated ports, overall activity in the region is actually up 5-10% above pre-war averages.
• Russian potash export activity is likely at 60-70% pre-war levels. EuroChem appears to be operating at normal levels, but Uralkali (the larger Russian potash producer) may still be significantly restricted based on Uralkali's St. Petersburg port operating at only ~35% pre-war levels.
• Belarus potash export activity remains severely limited. There is essentially no activity at the Lithuanian Klaipeda port that previously accounted for ~90% Belarusian exports, while industry sources indicate rail shipments at ~100Kt/month, implying overall exports at ~10-15% pre-war levels.
• We see a potential potash supply loss of ~10Mt in 2022 vs. 2021 global supply at ~70Mt, based on our estimates of Russian and Belarusian potash export activity.
• Russian nitrogen and phosphate exports have recovered. Russian fertilizer port loading activity is actually ~70% above pre-war levels, excluding the St. Petersburg potash port, while non-Russian ports that remain active have strong ties to Russian fertilizer companies focused on nitrogen and phosphate.
Potash supply still restricted and could remain tight for several years: We continue to see potash markets as very tight given ongoing limits on Russian and Belarusian activity. While we think Russian export activity could improve over the next 6-12 months as Uralkali sorts out distribution and logistics, we see Belarusian exports as likely taking at least 2-3 years before returning in volume given the need for new port capacity and continued geopolitical tensions between the Belarusian regime and Western countries. We expect the lack of Belarusian supply will likely keep prices elevated through at least 2025 even as prices ease from record levels with Russian export availability improving over time.
Nitrogen and phosphate exports have recovered, but markets still tight: In nitrogen, returning Russian exports have pressured prices during the mid-year seasonal lull, but sharp increases in EU natural gas prices have pushed up the global cost curve again, prompting closures in the EU and pointing to higher prices when the cost curve re-asserts its influence on the market later this year. Phosphates have eased slightly with better Russian and Chinese export availability, but supply remains tight and prices elevated with limited ability by producers to raise output to meet strong demand.