First published 08.01 GMT, 24 June 2016, by Tom Jago.
Today’s Brexit referendum victory has had big knock-on forex impacts overnight for key players in the global phosphates market. It should also free the UK of the EU’s selective import duty structure on imports according to origin (more below).
– India: Brexit has hit Indian forex hard, taking the Rupee back over Rs68/$1 towards the threshold of all-time lows. Today’s rate of Rs68.15/$1 cuts DAP importer break-even to around $370pt cfr. This is still a big margin basis competitive offers in the mid $340s pt cfr. But the threat of further weakness could be an incentive to stop deferring, and buy more DAP today.
– Other importers: Forex impact on other significant phosphate importers starting to plan 2H 2016 imports now. These include the Canadian dollar, down to CAD1.30/$1, and the Australian dollar down to A$1.36/$1. The Euro is softening back to €1.1/$1, roughly at the same level as during the February/March import volume peak. Brazilian forex has seen no impact as the Real continues its strong recovery challenging 11-month highs in the mid BR$3.30s/$1.
– Forex impact on big phosphates exporters: The Russian Rouble decline to RUB64.95/$1 cuts DAP cash costs at the low-end of the global cost curve, supporting the already 3-digit margins for the Russian majors. The Chinese RMB sliding to a near 7-year low of RMB66.5/$1 supports Chinese exporter income, and offsets gradually eroding export DAP, MAP prices.
UK DAP, TSP, NPK imports
Outside the European Union, UK fertilizer importers should be free of the EU’s selective import duty structure that favours duty-free phosphates suppliers in Morocco, Tunisia, plus of course those in the EU (Lithuania, Poland). So despite today’s big forex hit suffered by the GB pound, removal of import duties should bring in more supply origins, making DAP and MAP more competitive.
– Outside the EU, the 6.5% import duty disadvantage imposed on Russia, USA, Saudi Arabia and China should be removed, making those origins duty free also. With cheap ocean freight on all sizes, it could open up a logical trade route from Tampa to the UK, and boost the sales of Russian NPKs (eg 15-15-15 or 9-25-25).
– Volumes: The UK is a relatively minor phosphates importer, totaling around 150,000tpa DAP, MAP and around 130,000tpa TSP.
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