The global water-soluble fertilizer market has had a choppy few years, largely because WSF prices rise and fall on the tide of the much larger bulk fertilizer markets. The rise in container freight during the pandemic also turbo-charged water solubles even further. NAI’s Chief Analyst sat down with Aquifert’s founder and commercial director Phil Sunderland and managing director Matthew O’Leary to discuss.
Some WSF products, such as calcium nitrate, are now starting to be shipped more regularly in bulk. This signals that part of the market is becoming more commodity-like. But there is a danger in not knowing these niche markets, each with their own market dynamics.
One company at the forefront of this change is Aquifert. The name might be new, but the management team has decades of trading experience.
NAI’s chief analyst Luke Hutson sat down with Aquifert’s founder and commercial director Phil Sunderland and managing director Matthew O’Leary.
The water-soluble fertilizer (WSF) market has seen a few choppy years, largely because WSF prices rise and fall on the tide of the much larger bulk fertilizer markets.
WSFs also have their own dynamic within that, being very concentrated in supply and often shipped in containers. End-users tend to be growing high value crops and need a steady supply and guaranteed quality to avoid any crop damage and costly delays to irrigation processes.
Some WSF products, such as calcium nitrate, are now starting to be shipped more regularly in bulk and this could signal that part of the market is becoming more commodity-like. With that comes more suppliers, but there is a danger in not knowing these markets, each with their own dynamic and quirks.
“We’ve seen shorting in this market. A clear indication that the water-soluble market is becoming a commodity,” says Sunderland, who has 25 years global trading experience and continues to hold the record for the world’s largest fertilizer shipment (93,500 metric tonnes) of urea in a single cape-size shipment.
Shorting is a trading term for when you sell something that is not currently in your possession. Spotting ‘a short’ in the markets takes a trained eye and knowledge of prevailing prices. In the context of commodity bulk fertilizers, short selling can be most visible in tenders held by large importers. “In my days of urea trading, the best way to spot shorting was when we were in an over supplied market, with weak forward demand,” explains Sunderland.
Shorting requires a certain level of suppliers and liquidity. If you sell something, you want to be able to go and source it and fulfil the contract. The concentrated nature of the WSF markets normally acts against such trading.
When talking about WSFs, there are really five core products: the heavyweights by volume would be potassium nitrate (NOP), calcium nitrate (CN), followed by monopotassium phosphate (MKP) and technical MAP (TMAP). Soluble potassium sulphate (SOP) would be produced in lower volumes. Because of the concentrated nature of the supply of WSF, much of the produced volume needs to be shipped to the points of consumption. For potassium nitrate, a central ingredient to soluble NPKs, the traded volume is somewhere between 800,000 tonnes and one million tonnes. Calcium nitrate would be traded in a similar volume and would go in small quantities to multiple markets. Calcium nitrate is important to induce flowering, which in the Philippines, for example, enables multiple harvests of mangos.
MKP is popular with greenhouse production. Traded volumes would be around a couple of hundred thousand tonnes globally. Much smaller than the millions of tonnes of ammoniated phosphates shipped each year. Of the 1.8 million tonnes or so of potassium sulphate traded each year, only around 10 percent would be the water-soluble SOP.
Another sign of the increasing commoditization of some WSF products is the shipment sizes. “We’re now seeing regular cargo sizes of 3,000 to 5,000 tonnes of calcium nitrate, TMAP and NOP,” says O’Leary, an Australian who has led trading and consulting businesses in China. He notes that demand growth has been underpinned by the expansion of greenhouse production, uptake in foliar use and heavy use in large-scale drip irrigations projects.
Getting trade data on WSFs is a tricky business (more of that later) but there is visibility on shipments by vessel and this is the evidence that Aquifert has noticed and is now using to inform its strategy. “Regular shipments will remain at 250 to 500 tonnes in the near term, some say up to 2,000 mt, but in the longer term, we are expecting an increase in cargo sizes, especially with the wider utilization of break bulk shipping. There can be considerable reductions in handling and shipping costs to various destinations,” explains O’Leary.
“Aquifert has an ambitious goal to be trading over 50,000 tonnes of water-soluble fertilizer within a 12- to 24-month period. We have significant support from producers and are converting this support to value for our global receiver network. We achieve this through superior purchasing and sales liquidity,” adds O’Leary.
How does this commoditization change the water-solubles business? According to Sunderland, one development could be that more traders become involved. “Prices will move more quickly,” he says. “It’s basic supply and demand. If you have more sellers in the market, then prices can respond quickly to demand levels.”
The question of whether this benefits the grower can only be answered with a rather large ‘well, it depends’. Having more trading participants doesn’t really solve the fundamental issues around supply concentration, which means production is dominated by a relatively small number of suppliers. And although trade flows can be broadly quantified, actual consumption figures by country are difficult.
Getting trade data for WSFs requires a lot of footwork. Data does exist but it requires a certain amount of scrubbing to analyze it. This matters if you are a trader trying to perform a supply/demand analysis.
Part of the problem comes down to how cargoes are classified under HS codes – the harmonized system for tariff codes. When talking about TMAP, a cargo might be labelled as 11-52-0 standard MAP, but actually is TMAP with a nutrient analysis of 12-61-0. One Russian producer has an MAP product with a label analysis of 11-44-00, and some Chinese MAP is labelled as 11-56-0 and described as water-soluble. Trying to untangle this is not an easy task and requires knowledge of where the product has come from to assess whether it is water-soluble MAP or the standard grade. All TMAP dealt with by Aquifert is bagged product.
When it comes to the nitrates, the task of allocating what is for agricultural end-use and what is for industrial use is even harder (see NAI SEP 2020).
Aquifert primarily sources from China, unsurprisingly the world’s largest WSF exporter. “Doing business with a Chinese company is all about establishing a relationship, understanding their production and delivery process and how to position each factory’s product. This is all before you’ve even exchanged a tonne of fertilizer,” says O’Leary. China has TMAP capacity of around one million tonnes per year. The more limited supply options within water solubles is one of the key differences with the bulk fertilizer market. Recently, Aquifert expanded its sourcing capability to the EU, Turkey, Egypt and Indonesia. A network of local agents is critical in the water-soluble consuming markets. Aquifert has agents in Singapore, Spain, India, Turkey and Brazil and more recently expanded into the strongly growing water-solubles market of Mexico.
Local knowledge, mature relationships and boots on the ground provides Aquifert buyers with lean costs and an ability to navigate any problems with trade performance. Aquifert not only sells to regional fertilizer distributors but also directly to end-users, typically large-scale producers of high-value crops.
The first half of 2023 has seen commodity fertilizer prices fall from the high levels seen the year before. Natural gas prices – typically the feedstock for nitrogen fertilizers – have also retreated which should bring back some European ammonia production. Urea offers in one Indian tender in March were USD$330 cfr, and DAP prices have fallen back to sub USD$500 FOB China, showing both nitrogen and phosphate moving down towards pre-pandemic levels. What does this mean for water-soluble prices? Already TMAP has dropped down to around $700 FOB China, from highs of $1,700 FOB China in 2022. And NOP has fallen from $1,300 FOB China to around $800 FOB China.
“There’s probably further that water solubles can fall in the remainder of 2023 due to higher supply availability and the correction happening in the major nutrient market. At the same time, the normalization of container freight rates makes water solubles more accessible. These factors will spur demand and enable wider adoption of water-soluble fertilizers which are more environmentally friendly than traditional fertilizers,” predicts Sunderland.