Global fertiliser prices are dropping and local prices are likely to come under heavy pressure later this year, according to an industry analyst.

Prices have been in freefall since June last year for key fertilisers like urea and phosphate, which has gone from US$472 ($581) a tonne to US$388 ($547.75) a tonne over that period.

Urea prices from Australia's main supplier, the Middle East, have also been sliding from US$292 ($412) a tonne in June, to US$218 ($307) a tonne this month.

Australian farmers use urea to add more nitrogen to their soils, while phosphate, in the form of monoammonium phosphate (MAP) or diammonium phosphate (DAP), commonly called superphosphate contains a mix of nitrogen, phosphate and sulphur.

Space to play or pause, M to mute, left and right arrows to seek, up and down arrows for volume. Listen Duration: 5 minutes 6 seconds 5 m CRU Group agricultural economist Chris Lawson discusses the forces behind a major slide in global fertiliser prices ( Clint Jasper ) Download 2.3 MB

Each of these elements are essential for healthy plant growth and are commonly lacking in Australian soils.

London-based CRU Group agricultural economist Chris Lawson compared the situation to the oil market, where huge falls in the price of crude oil were causing major headaches for producers, but retail prices have only dipped by a fraction of that amount.

Driving prices down are a combination of huge volumes of Chinese production entering the market, and large production capacity coming on-line from producers, the result of a 2008 wave of investment in the industry.

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"Demand is also weak in key markets like Brazil, which struggled financially last year," Mr Lawson said.

"But generally prices are being driven down by supply factors."

These market forces are at play in the Australian market, where competition among suppliers is also heating up, with the entry of more Chinese product and the US producer Koch Industries competing with local player Incitec Pivot.

Mr Lawson said Chinese producers were selling at a loss, although local prices remained higher than global benchmarks, because much of the inventory on the Australian market was purchased at a time when prices were higher.

Urea prices in freefall

Australia consumes around two million tonnes of urea each year, and the world's most significant exporter, China, has continued to pump supply into the market, even as prices have come down.

While more Chinese product is entering the Australian market, the Middle East remains a key supplier.

The raw materials used to make urea, namely natural gas and oil, have also dropped significantly, lowering the cost of production.

"The best case scenario for fertiliser producers is for the market to stabilise," agricultural economist Chris Lawson said.

"We aren't expecting a rebound, but if some producers curtail production, or the oil prices rises, then we might see that stabilisation."

Phosphate demand slumping

The phosphate market is much more demand driven, and Mr Lawson isn't expecting orders to pick this year.

Major buyer India is already flush with inventory and Brazil's financial woes have meant its budget for importing fertiliser has been slashed.

"At the same time demand is dropping, Moroccan producer OCP is ramping up production, so there's more supply coming onto the market," Mr Lawson said.