OAO Phosagro expects prices in the $35 billion phosphate-fertilizer market to increase as the Russian producer joined Mosaic Co. in projecting a jump in Indian demand this year.
India’s purchases of diammonium phosphate, or DAP, the benchmark for the nutrient, may climb by more than 60 percent to as much as 6.5 million metric tons, Phosagro Chief Executive Officer Andrey Guryev said in a May 21 interview.
“India surprised this year by its explosive growth in demand for phosphate fertilizers,” he said. “This year has a good chance of being the best for us since at least 2008.”
A day earlier, Jim Prokopanko, CEO of U.S. rival Mosaic, told investors that Indian demand was exceeding the company’s “own bullish estimates.” Mosaic forecasts imports close to 6 million tons, helping to offset declines in North America. India, one of the two largest phosphate-fertilizer consumers, is increasing purchases as lower oil prices free up government funds to support agriculture, according to Guryev.
Phosagro, the world’s third-largest producer, has won a fifth of the 2.5 million tons of contracts awarded by India in the first four months of the year, he said.
Demand is rebounding as economic growth in the country, which Phosagro abandoned in 2013, is forecast by the International Monetary Fund to outstrip that of China this year.
For some analysts, including Elena Sakhnova of VTB Capital in Moscow, Guryev’s projection looks optimistic.
“Phosagro’s forecast is beating our estimates of India’s import of a bit more than 4 million tons,” she said.
Still, prices for DAP in the country are already higher than in the “premium” Brazilian market, Guryev said.
DAP in India currently stands at $485 to $490 a ton, according to the CEO, compared with $460 last year.
India, along with Brazil and the U.S., will be one of the key drivers of prices this year, Guryev said. The market has swung in favor of phosphate-fertilizer producers, making Phosagro, Mosaic and Morocco’s OCP Group better investments than potash miners, which face a potential supply glut, he said.
Phosagro expects global phosphate-fertilizer prices to average $475 this year, after rebounding to $465 in 2014 from $300 in 2013, according to data compiled by Bloomberg Intelligence.
“Phosagro itself is a rising star on the global market,” said Konstantin Yuminov, a Raiffeisenbank analyst. “Its investment cycle is almost over, it plans to boost dividends and coupled with the positive situation on the phosphate market, it’s a really good investment.”
Phosagro’s production cost was $155 a ton in the first quarter, the lowest in the industry, according to Guryev. The company boosted output by 8 percent in the period and hopes to maintain that growth for the full year, the CEO said.
The company has its own sources of phosphate rock, while other fertilizer ingredients such as gas and potash are also produced in Russia, an advantage shared only with North America and Saudi Arabia, Guryev said.
Phosagro’s global depositary receipts have climbed 27 percent in London this year and reached $13.35 on May 14, the highest in two years. The receipts traded at $12.80 as of 2:53 p.m. in the U.K. capital, valuing the company at $5 billion.
“We hope the market will appreciate it and the multiples will grow,” the CEO said.