Chinese DAP Price Estimates (March-May 2022)
Since China’s fertiliser export restriction in Oct 21, the price gap between domestic and international remains very big (>50%). It is not an outright ban, through proper magic done, it is still very possible to export, and those who has made it have made quite a fortune. You can see from the following table, that in December 2021, 34.7 thousand tonnes of DAP. 35.4 thousand tonnes of Urea, and 27.9 thousand tonnes of MAP exported.
There are some tricks needed to process such exports, besides supporting documents required from the manufacturer itself, it is also a must for the clearance cargo to place in designated area by Chinese custom until granted approval for export. The whole process estimated to take 40-60 days depending on the location and number waiting in queue, with Hubei having the longest waiting time followed by Yunnan, while places like Henan province are among the fastest.
However, even fulfilling all the requirements does not guarantee the clearance approval. To date, from what I understand from the market, the success rate is as low as 20%. That is to gamble 60 days costing for a 20% winning chance!!! Let see if it worth the effort.
With on-going China domestic DAP price at CNY3500-3550 ex-work, FOB equivalent roughly at USD584.50 (including domestic transportation and port charges), assuming USD900 FOB China is acceptable, the spread is at ~USD315.50 (~60%).
Next question is whether the fundamentals encouraging producers to queue up to export?
Interest cost
Usually producers rely on state-own enterprises’ low financing cost which is about 6-7% per annum without collateral. To keep the cargo for 40-60 days, it will cost from CNY23.00 to CNY40.84 p.m.t.
Warehousing cost
On average, warehouses charge about CNY0.80 per ton per day, for 40-60 days, that is CNY32.00 to CNY48.00 p.m.t
Very profitable!!
On average, producers need to spend extra CNY72.00 (~USD11.37) p.m.t to process the clearance make a possible gain of USD63.10 (w/20% chance @FOB900). That is very encouraging!!
I would expect a lot more cargo being put up for custom clearance until the success rate drop to ~4% (@FOB USD900 or more), and especially after the spring application season, the custom might allow even more approval for export to ease the piling inventory.
OR
The traders can simply choose to short the market with happy-go-lucky contracts with buyers, that is a kind of contract that only binding subject to custom clearance approval, quite popular these days. Traders still make very good money at FOB USD700 level at current situation.
Conclusion
It is very possible that traders already shorting Chinese DAP at below FOB USD800 level for Mar-May delivery. If you hear any news about that please do let me know, we can discuss more.
