Analysis: Mosaic may have won skirmish in fertilizer wars

Thu Dec 29, 2011 6:04pm EST
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By Euan Rocha and Rod Nickel

TORONTO/WINNIPEG (Reuters) - Mosaic, a leading North American fertilizer producer, may have won the battle to arrest a plunge in phosphate prices ahead the region's spring planting season, but it still risks losing the war as overseas capacity surges in the coming years.

Production cuts announced on Wednesday by Plymouth, Minnesota-based Mosaic (MOS.N: Quote) account for only about 12 percent of its quarterly phosphate production capacity and a small fraction of global capacity.

Even so, the move could help tighten markets before dealers begin to restock inventories ahead of North America's spring planting season.

"What you've got is very, very, very little spring buying," said Dahlman Rose & Co analyst Charles Neivert, adding that dealers are holding off buying phosphate fertilizer in anticipation of lower prices.

"Mosaic's move certainly improves the chances of getting a little bit better pricing and we certainly expect pricing to go up into the spring," he added.

Even as the price of widely used diammonium phosphate, or DAP, adjusts to this season's market dynamics, the long-term trend is undeniably bullish. Growing demand for high-quality food in emerging economies is expected to keep demand for all three major crop nutrients - nitrogen, phosphate and potash - rising over the coming decades.

For that reason, producers are scrambling to add capacity and that could hurt Mosaic and its North American rivals - Potash Corp (POT.TO: Quote) (POT.N: Quote) and CF Industries (CF.N: Quote) - over the medium term, even if phosphate pricing strengthens ahead of spring plantings.

Pricing over the next three years could come under pressure as production from the huge Ma'aden phosphate project in Saudi Arabia ramps up. On top of that, Morocco's state-owned OCP, the world's largest phosphate rock miner, is expanding both its phosphate rock and finished fertilizer production capacity.   Continued...