Potash demand has improved, with suppliers having modestly increased pricing over the past month to ~$400/t CFR. All eyes remain on India though and its upcoming MOP contract. We view this as the next major development in the potash market, one that will help shape pricing moving forward. While an Indian buying consortium recently signed a contract through June 2010 at $370/t CFR, recent comments out of India indicate that buyers will not accept an annual contract above $350/t CFR [where the 2010 BPC/Chinese (and likely Canpotex) MOP contract settled].

The outlook for phosphate fertilizers remains stable. DAP prices have risen 20%-30% over the past couple of months on improving international demand fundamentals and rising input costs. In the U.S. expectations of rising feedstock costs in H1/2010, particularly for ammonia and sulphur, will help support DAP prices over the coming months.

Outlook for ammonia remains robust as tight supply conditions, especially out of Eastern Europe, are forcing buyers to secure product at a higher level. Tampa March prices settled at $450/t CFR, up $85/t month over month. The tightening in the sulphur market has pushed sulphur prices higher and spot prices are north of $200/t CFR in some regions. Strong demand from phosphate fertilizer producers and little prospect of new supply coming online are contributing to the higher pricing levels.

Methanol prices continue their rise due to ongoing supply disruptions, rising oil prices, and an elevated Chinese thermal coal price. In addition, with Chinese methanol operating rates hovering at ~50%, we expect net import levels to remain elevated. Methanex raised its Asian March contract price by $15/t to $365/t.

Eoin Treacy's view Given our concentration on shale gas particularly over the last two weeks, I have been mulling over what the ancillary effects might be for various industries. A great deal of ammonia/nitrogen based fertiliser is synthesized from natural gas and I was wondering if this might have a knock-on effect for other forms of fertiliser. The Fertilizer Institute provides a great deal of information on the uses of fertiliser and the proportions of nitrogen, phosphorous and potassium needed to efficiently promote growth. Here are two sections:

Plants require 14 essential nutrients for healthy growth. The absence of any one nutrient in the soil can limit plant growth, even when all other plant nutrients are present in adequate amounts. The three macronutrients that are essential for food production and quality are: nitrogen, phosphorus and potassium.

And

How much N, P and K are in your bag of fertilizer? The analysis found on each bag or bulk shipment of fertilizer tells the farmer or consumer the amount of nutrients being supplied. States have a system of laws and regulations that ensure the fertilizer is properly labeled and delivers the amount of nutrients stated to the farmer or consumer.

The three numbers on your bag of fertilizer are referred to as the "analysis." It is the percentage of nitrogen, phosphate and potash that is available to plants from that bag of fertilizer. In this diagram, this product contains 5 percent nitrogen, 10 percent phosphate and 5 percent potash.

So what's the other 80 percent of what's in this bag? While brands vary, typically the rest will contain some micronutrients and filler material, which allows for even application of the nutrients across the fertilized area.

This factsheet from Potash Corp may also be of interest.

We have a number of charts of fertiliser prices in the Chart Library and these provide some interesting insights into the market.

Prices for Ammonium Nitrate bottomed June and broke upwards in November. Diammonium phosphate has a similar pattern. Ammonia has been trending higher in a relatively consistently manner. Sulphur prices have been rallying impressively since January, Urea Prill and Granular Urea are both attempting to break upwards from their bases. Potash is the laggard and needs to sustain a move above 370 to indicate a return to demand dominance.

Companies such as Agrium and Yara International with a significant natural gas component to their cost base are outperforming in the current environment with some input prices dropping and prices for their products beginning to rise. Significant M&A activity, not least by Yara has also seen this portion of the fertiliser sector garner increased attention.

Potash Corp (potash, phosphate and nitrogen) Mosaic (potassium and potash), Uralkali (potassium), K+S (potassium and potash) have lagged somewhat but remain in generally bullish chart patterns.

The above articles suggest that the farmers need to mix the different fertilisers in order to get the best yields. This suggests that the choice of fertiliser is not an either/or decision but that all three major nutrients (nitrogen, potash and potassium) need to be included. Lower natural gas input prices have probably contributed to the outperformance of related shares but other companies in the sector sustain a bullish outlook, not least because farmers can possibly go a year or two without fertiliser but will need to restock at some stage.

These two short reports from National Bank and Mackie Research respectively may also be of interest. (Also See Comment of the Day yesterday).