Affordability drives fertiliser trade growth—and Panamaxes see biggest annual gains
Improved affordability in the 1H 2024 has been at the heart of the revival in fertiliser use after two years of decline (mostly affecting potash and phosphates), according to the International Fertilizer Association (IFA)’s Medium Term Outlook.
Although geared bulkers carry the clear majority of global fertiliser trades, this year’s increase in cargo volumes has mainly benefitted Panamaxes.
We look at the reasons for the boost to Panamax trade as well as other shipping implications of the IFA’s outlook.
It may seem counter-intuitive that fertiliser trade growth has been focused on Panamax trades, which make up an estimated 10-11% of seaborne fertiliser trade carried on bulkers, but the chart, below, shows how lopsided growth by bulker sector has been in the 1H.
Moreover, analysis shows the major year-on-year gains in the 1H 2024 involved longhaul voyages, adding to the positives for ship demand.
We have identified three main parts to the Panamax yearly growth story:
Shipments from the Baltic (Ust-Luga) to China. For the most part, these have been routed via the Cape of Good Hope in the 1H this year, as opposed to the first six months of 2023 when Suez transit was the practice. Using actual observed shipments, Braemar calculates that tonne-mile demand on this trade in the 1H 2024 was 20% higher than if all ships had continued to steam via Suez.
US Pacific Coast departures (from Portland) carrying potash to Brazil. These involved voyages around Cape Horn, as was mostly the case in the 1H 2023.
Exports from Oman (predominantly Sohar, with smaller volumes from Sur) to Brazil and India. Oman is well-positioned to fertiliser importers in South Asia and its producers enjoy access to cheap energy thanks to abundant natural gas.
As a result, the positive impact on freight rates from the trade gain is amplified by the effect on tonne-mile demand.
Already in terms of Panamax fertiliser cargoes, this marks a large annual gain of 29%, judging by vessel tracking; when translated into tonne-miles, our calculations show the increase is even larger, at 53%.
The three examples above are not necessarily representative of all fertiliser trades from those load ports; they are simply the leading examples of yearly growth in January-June this year.
Seaborne fertiliser supply from Russia (plus potash from Belarus since the EU removed access to Klaipeda in early 2022) is a talking point.
A Q1 review of port throughput publicised by Russian media outlet Portnews IAA showed a 38% yearly gain in the country’s (mineral) fertiliser cargoes to 10.2m tonnes, the fastest growth of any Russian trade, dry or wet. The Q1 jump is more impressive following a 52% YoY leap to 36.7m tonnes.
Discussions are underway to expand Russian load port capacity further. In February it was reported that Taman port could be expanded to include fertiliser-handling facilities. The IFA referred to “major port investment” at Murmansk in its latest outlook; according to Russian reports in 2022, a terminal was under construction at that location which could ultimately handle 5-7m tonnes/year of Belarusian potash. This may help return some Belarusian cargo to the seaborne market, which is currently being railed to China.
What are the implications for shipping from the IFA’s Medium Term Outlook?
The IFA forecasts world potash production capacity is set to rise 19% between 2023-28 from Belarus, Canada, Laos and Russia. However, the size of the contribution to bulker trades from Laos is debatable.
Industry media indicate that Laotian potash is exported from Vietnam and aimed at nearby markets in South and Southeast Asia. However, it is often shipped in containers or in breakbulk in bags—unless it is shipped to longhaul destinations when bulkers can be used.
A second phase of potash capacity is expected from 2027, including from Canada.
In coming years global fertiliser use is expected to maintain annual growth, but at a slower pace. The IFA forecasts 2.2% expansion in the FY 2025, decelerating to 1.5% by the FY 2028, reflecting improved nutrient use efficiency as well as slowing growth in food production/population growth.
With the IFA forecasting Latin America and South Asia as the “main engines of global growth in the medium term”, import prospects for Brazil and India appear sound.
Consumption in South Asia, the second-largest region for consumption, is expected to rise 23% between FY 2024-28 as the region with the strongest government support (subsidies). Over the same timeframe, Latin America is projected to add 24% to consumption.
As a note of caution, the IFA adds that lower fertiliser prices may also erode the investment case for new production capacity. Other brakes on fertiliser supply include energy costs in Europe and the natural gas shortages which interrupted fertiliser production in Egypt in June.
The flip side would be the comparative advantages on fuel enjoyed by producers in Oman, for example.
Although the IFA forecasts slowing fertiliser use is still in the medium term, the latest IFA outlook (from July) projects stronger expansion than in June 2023.
