110% Chinese Export Tariffs?

25 Nov

By now the impact on crop and fertilizer prices of China’s growing population and increasing GDP/capita is old news. The people have got to eat, and with a limited supply of arable land and increasing appetites, yield improving fertilizer prices have been strongly supported. But there’s a further less document positive fertilizer driver at work here…

As December 2010 draws closer, there are reports that port officials are imposing a 30 November deadline for DAP and Urea shipments at the current 7% season export tariff rate. Over the past couple of years Chinese authorities have imposed high export tariffs on fertilizers during peak seasons (ranging from 110%-135%) in an attempt to decrease exports, reduce domestic prices, and maintain domestic supply in the never ending need for crop yields. Nothing official has been announced yet regarding the imposition of similarly high tariffs again for 2011, but I find it hard to believe that port officials are acting in a vacuum.

In the words of Marvin Gaye, “What’s going on?”

In the first 10 months of 2010 Chinese phosphate exports increased by around two-thirds year-on-year. This occurred against the backdrop of a number of key crops (including corn) falling short of expectations. In addition, official Chinese statistics illustrate lower domestic fertilizer demand over 2009-10.

It seems that the port authorities are more than hinting at an impending official announcement aimed at improving domestic food security. This will definitely have an impact on global fertilizer supply, especially for phosphates and urea. (Note – in 2009 China accounted for about 17% of global phosphate exports).  Any tightening of supply is sure to add to the upward pricing pressures of these two fertilizer types. However, I would also expect increased potash demand from China. Why? Farmers are most likely to try and keep some sort of fertilizer application balance across the N-P-K complex.




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