CRU: FX depreciations cause phosphate rock costs to tumble

LONDON, Sept. 7, 2020 /PRNewswire/ — The impact of the COVID-19 outbreak on the global economy is starting to become…

LONDON, Sept. 7, 2020 /PRNewswire/ — The impact of the COVID-19 outbreak on the global economy is starting to become clearer and CRU has evolved its phosphate rock cost estimates to incorporate our latest forecasts on the longer-term impacts of the virus.

The sharp depreciation in foreign exchange rates and a global decline in hydrocarbon fuel prices are the major drivers of change in 2020 phosphate rock production costs. Costs have fallen globally in 2020, but Russia and Brazil have seen the most substantial declines, all of which will flow through to downstream phosphate fertilizer dynamics. CRU’s Phosphate Rock Cost Service gives access to production cost estimates for 136 mines across 37 countries from 2010 to 2024. 

COVID-19 has shaken investor sentiment

The COVID-19 pandemic has had a profound impact on the world, causing major disruption to daily lives and economies. Economic instability has led to investors around the world reducing risk and focusing on investing in safe-haven assets. Investors fleeing riskier developing economies has caused significant depreciations of these currencies against the US dollar.

The impact of COVID-19 on foreign exchange rates has not been uniform. Countries such as Russia, South Africa, and Brazil have all experienced sharp depreciations, while India and China have seen smaller reactions. Brazil and Russia are extremely important to the phosphate industry, Brazil as a major demand market and Russia as a major producer. Therefore, the major changes in foreign exchange rates will have a significant impact on the industry.

The Brazilian Real has depreciated markedly over 2020 and is forecast to average at 5.2 BRL/USD over the year. The sharp decline has been driven by the declining growth prospects due to COVID-19, repeated interest rate cuts, and continued concern over the risk profile of the country. CRU economics forecasts the Real will not depreciate further, but the prospects of a recovery in 2020 are slim.

The Russian rouble faced a duel shock of COVID-19 and a collapse in oil prices. The later has been particular severe on the Russian economy, which is heavily reliant on petrochemical exports. The Rouble has depreciated sharply due to these issues and is forecast to average at 71 RUB/USD in 2020. CRU economics is forecasting an appreciation of the Rouble over the medium term due to Russia’s current account surplus

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About CRU

CRU offers unrivalled business intelligence on the global metals, mining and fertilizer industries through market analysis, price assessments, consultancy and events.

Since our foundation by Robert Perlman in 1969, we have consistently invested in primary research and robust methodologies, and developed expert teams in key locations worldwide, including in hard-to-reach markets such as China.

CRU employs over 280 experts and has more than 11 offices around the world, in Europe, the Americas, China, Asia and Australia – our office in Beijing opened in 2004 and Singapore in 2018.

When facing critical business decisions, you can rely on our first-hand knowledge to give you a complete view of a commodity market. And you can engage with our experts directly, for the full picture and a personalised response.

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