17/06/02011 (The Star) - Credit Suisse revising global prices upward on rising price of grain.

Global fertiliser prices are expected to increase this year in tandem with the rising price of grain and cost of raw materials, said a foreign-based research outfit.

Credit Suisse said in its latest Asian Palm Oil Sector report that it was revising upward the prices of fertiliser as strong grain prices would boost the demand of three nutrients in 2011.

It also noted that China's aim to reduce fertiliser exports through tight export controls and prohibitive export taxes would materially reduce export supply.

“Raw material costs for marginal cost producers have surged,” it said, adding that fertiliser costs had already risen significantly over the past four years, with ammonia rising 60% to 73% and urea surging 12% to 23% during the period.

With rising fertiliser costs, margins would be eroded, said Credit Suisse.

“Oil palm is by far the largest fertiliser-consuming crop in Malaysia.

“Of the inputs, fertilisers account for about 40% to 50% of the total operational cost versus 30% to 35% pre-2007, primarily due to the sharp jump in potash prices.”

It said the four macronutrients required for oil palms included nitrogen (N), phosphorus (P), potassium (K) and magnesium (Mg), and that rising fertiliser costs would erode plantation companies' margins.

“The main source of K fertilisers is potash which is mainly obtained from Canada, US, Russia and Jordan.

“The appreciation of the Malaysian ringgit has somewhat defrayed the fertiliser cost pressure,” the research house said.

Credit Suisse noted that besides rising fertiliser costs, Malaysia was also facing serious labour shortages at the oil palm plantations.

“It is estimated that around 90% of the manual workers in oil palm plantations are Indonesian workers employed for harvesting, weeding and other plantation maintenance work.

“With rising wage levels, coupled with better job opportunities in Indonesia as the country is opening up more plantations, an increasing number of experienced Indonesian harvesters have chosen to remain at their home country.”

In addition, Credit Suisse reckoned that with Sime Darby increasing the salaries of its 37,000 estate and mill workers by RM200 per month effective July 1, there would likely be pressure on other plantation companies to follow suit.