The production of phosphate fertilizers begins with phosphate rock. About 75% of global phosphate reserves are in Morocco and the Western Sahara, according to PotashCorp (POT), which also produces phosphate fertilizers.
Phosphate rock prices
Phosphate rock prices in February 2016 have fallen to $118 per metric ton from $122.5 per metric ton, higher than $115 per metric ton in February 2015. Earlier in this series, we saw that phosphate fertilizer prices have dropped over the same one-year period.
In an environment of increased input costs such as the cost of phosphate rock, the result can be the squeezing of gross margins for companies such as PotashCorp and the Mosaic Company (MOS) when fertilizer prices fall.
The above situation is anticipated to continue, which may explain why Mosaic predicted a fall in its margins for its upcoming 1Q16 quarter. You can read more at Mosaic’s 4Q15 Earnings: Nice Surprise, but What’s Next?
Note that ammonia and sulfur are two other input materials required for making phosphate fertilizers. We’ll look at the prices of these two raw materials in the next part of this series.