Nitrogen
Uncertainty around Egyptian urea production due to feedstock disruptions keeps prices moving up
Urea prices have continued to tick up again this week. The disruption to Egyptian gas production seems to be ongoing, with urea plants starting and stopping and a general lack of clarity around when stability will return. The uncertainty around Egyptian urea output has helped support higher prices again this week, and other urea producers in North Africa have been quick to sell to any potential Egyptian customers. In terms of overall supply-demand fundamentals for urea, the absence of Egypt for a few weeks poses no issue but it does make for a good story, which producers and traders are maximizing right now.
The upward momentum in prices was seen across the world with all major benchmarks showing higher prices this week. The increases ranged from $15 to $30/t. Some rumours of an imminent Indian urea tender were thrown around too but this was not supported by the Indians themselves and their urea stocks remain elevated, indicating that they can comfortably wait for the urea price to fall before they make their next purchase.
There have been some production issues in Indonesia, which has created a gap for Middle Eastern producers to target. This lifted the Middle East price by around $20/t and has pushed the benchmark towards the $350/t FOB mark. Once again, demand from Australia is said to be the main contributor to Middle East sales.
Demand in Brazil and Argentina seems reasonably good this week, with a fair amount of buying activity. This has seen prices in those two countries pass $370/t CFR and $380/t CFR respectively. Brazilian imports for January to May this year match the same period last year. South America is entering into the procurement window for the upcoming summer rainfall season, thus demand is expected to keep rising – the strength of demand will be influenced by farm economics and grain prices will be the most significant driver in this calculation.
The Chinese export situation remains unclear – it appears that the government is delaying export approvals, apparently to ensure adequate urea supply to the Chinese domestic market. Their urea application season is drawing to an end, plus domestic demand for urea has been quite weak, thus Chinese domestic urea stocks are building and the local price is dropping – which all points to the Chinese looking towards exporting sooner rather than later.
At some point, Chinese volumes are going to hit the world market, possibly from late July or August, and this may well be the point where the price ‘corrects’ downwards. The current rate of price increase is not sustainable in terms of fundamentals and the peak urea demand period only really kicks from September/October. Therefore it seems probable that between July and September, we will see demand for urea take a dip as buyers resist overheated prices and the urea price will drop back.
Higher urea prices are assisting Ammonium sulphate prices, and demand for amsul from Brazil and the rest of South America is seeing a rise in trading volumes. Amsul prices from China rose by $10/t with traders taking long positions and a surge in purchasing of crystalline product by Chinese compactors (to produce compacted/granular product). Amsul values in Brazil gained more than $20/t with prices in Brazil now above $200/t CFR.
European Ammonium Nitrate and CAN prices were raised by the major players again this week but this has caused sales to dry up – the rationale for higher prices is the rise in urea prices – and European AN producers are certainly seeing higher production costs due to gas prices – but nitrogen demand in Europe remains weak and higher prices are going to further discourage farmer interest.
Ammonia markets were once again quiet this week, with prices unchanged at all major benchmarks. The increase in urea prices has now brought ammonia and urea prices into alignment with historical ratios, hence higher urea prices have not pulled ammonia prices upwards yet.
Phosphates
Lack of liquidity in Phosphates limits trading activity this week
Prompt cargoes of phosphates are apparently few and far between at the moment, which has brought trading to a standstill. In theory there should be ample product around as most of the major producers are operating and demand is well below theoretical supply. It appears that producers are holding back on product in the hope that prices will rise and they can achieve higher margins in the coming months. This is a dangerous game because demand for phosphates remains rather weak – i.e. there are not a huge number of buyers in the market, so any producers that do decide to sell will take all the business and leave the speculators stuck with their stock position.
The India situation on DAP remains the prime opportunity for that product as Indian stocks are low and the Kharif demand season has begun. Then economics of imported DAP into India are marginal at best and this has caused Indian importers to delay buying and presumably hope for lower prices to come. The window for Indian DAP imports is shrinking by the day, so the waiting game between DAP producers and Indian buyers will come to a head fairly soon.
Despite the supposed tightness of the DAP market, there has not been much movement in the price – the Chinese export price rose by around $10/t but not much trading took place at the higher numbers.
MAP remains the most sought-after phosphate product, being driven mostly by Brazilian demand. Brazilian trades have been done at over $600/t CFR, the highest price seen for MAP in over a year. Brazilian MAP imports January-May are around 30% lower than the same period last year, suggesting that there is likely to be a surge in Brazilian buying in the coming 2-3 months. The Saudi MAP benchmark price has not shifted from its $530/t FOB level but this is purely down to the absence of any deals being done because the Saudis have no MAP available.
Our import parity cost calculation is based off the Saudi MAP FOB value but considering that Brazil is paying over $600/t currently, the real cost of replacement MAP right now is nearer R12,000/t in Durban than our calculated value of R11,000/t. MAP availability remains a real issue in South Africa and we continue to advise farmers to cover a significant portion of their phosphate needs sooner rather than later.
Potash
Potash prices unchanged this week amidst minimal trading activity
There was an absence of any meaningful trading activity in Potash this week. A few tenders were announced across Asia, in line with normal potash purchasing at this time of year. The market remains reluctant to commit to any major volumes until the Indian annual contract price is settled, and the Indians are busy settling themselves after their national elections with the appointment of a new fertilizer minister – so the potash sector remains very quiet across the globe.
Brazilian potash imports for January-May reached a record high of over 5.4 million tons, indicating that potash stocks in the country are more than adequate and underlining that Brazilian buyers will not be under pressure to take higher prices for potash in the coming months. Almost 1.7 million tons of potash have been booked for June.
General Market Outlook
Crude Oil prices recover as Rand strengthens
Brent crude oil recovered from last week’s market reaction to OPEC, rising steadily from below $80/bbl to $82/bbl at present. The reason for the rise is a combination of an excessive drop last week, coupled with a more positive outlook for economic activity in most major markets.
Gas markets saw a moderate escalation in prices, with the European TTF index rising to $10.8/MMBtu and the US natural gas prices edging up to $2.9/MMBtu.
The Rand benefitted from positive local political developments, with the financial community apparently approving of the proposed ‘government of national unity;, which saw the Rand strengthen almost 3% against the dollar this week, approaching R18.30.
This week brought a sharp retraction for almost all grain prices, both local and international. The only exception was the CME maize price which rose by more than 1% - everything else was down. Safex white maize is approaching the R5,000/t mark and yellow maize is below R4,000/t this week.
Latest Direct Hedge quotes for Urea and MAP Swaps in USD:
|
