Nitrogen
Lack of Demand is keeping Urea prices under downward pressure – next Indian tender is looming
Urea prices have kept drifting slowly downwards over the past few weeks as lack of demand means producers have to work hard to keep sales flowing. India is expected to announce its next urea tender, possibly today, which is being touted as a possible driver of higher prices. This is unlikely in our view as there are plenty of producers sitting on substantial stocks and not a lot of alternative sales opportunities for August.
An above average monsoon season has boosted urea consumption in India over the past month. Indian urea stocks remain high by historical measures but the Indian Dept of Fertilizers is still expected to procure around 1 million tons in the upcoming tender. The primary bidders are expected to be the Middle Eastern and Russian producers.
The Middle East price has edged downwards from $350/t in mid-July to drop into the high $330s this week. Sales enquiries have been few and far between for the Middle Eastern producers and they will be focusing hard on the upcoming Indian tender.
Prices in Brazil have also declined as competition for Brazilian business has been fierce as sanctioned product has been undercutting non-sanctioned product, all the while crop economics for Brazil look gloomy. With the summer application season on the horizon, Brazil is expected to start buying heavily in the coming weeks. Whether this is enough to lift prices remains to be seen – what is clear is that the Brazilians are likely to be very price-sensitive in light of low crop prices limiting what they can afford to pay for nutrients.
The Egyptian production base is running reasonably well now after their gas supplies constraints last month. As usual, the Egyptians are targeting the highest prices globally, around $370, but there is no interest from any buyers at that level and they are likely to accept bids $10-20/t lower.
The US market has been quiet as it is late in the season now and most of the distribution network appears to be adequately supplied.
Iran has sold large volumes of urea in recent weeks, with prices ranging from $285-290/t FOB – which is a good $50 below the Middle East price. The usual discount for Iranian product is around $25/t, which suggests that the Middle East price may have another $25/t of downside, especially with the Indian tender likely to promote aggressive competition between bidders.
China remains largely absent from the international urea market and is not expected to participate in the upcoming Indian tender at all.
Ammonium sulphate prices have been stable but market opinion suggests higher prices are around the corner but we are less confident in this view. The amsul market is suffering from the stand-off between sellers and the Brazilian market, which is only prepared to buy at lower prices than are currently on offer. Amsul sellers are banking on the Brazilians running out of time and needing to pick up purchases as their season kicks in.
Ammonium Nitrate prices are static as the general lack of demand for nitrogen applies to all products. Higher natural gas prices in Europe are pushing production costs up for domestic nitrate producers but their ability to push through higher prices is limited by the threat of urea competition.
Ammonia prices in the West remain firm, sitting in the $450-500/t range as supply remains limited with key export producers down for various reasons. Asian prices are about $100/t lower – the Middle East is selling ammonia at $350/t and the Far East is paying around $410/t.
Phosphates
Outlook for Phosphates prices remains positive with strong demand from Asia
Substantial purchasing from Pakistan this week supported an increase in the DAP price from China, which was the supplier. In general the market mood is positive around higher prices although there were not a lot of major price changes this week.
OCP from Morocco is apparently involved in discussions with the Indians that will no doubt entail very large volumes if a deal is successfully concluded. The Moroccans have lagged a bit with sales in recent months and have the capability to supply enormous tonnages should the Indians agree to a deal.
The Indian government has raised its phosphate fertilizer subsidy to address the current loss-making situation for phosphate importers. This should boost Indian buying at a time that its domestic demand for phosphates has been particularly strong. Indian phosphate stocks are thus under serious pressure and the risk of non-supply to farmers is a pressing concern for the Ministry of Fertilizer.
Further declines in crop values have really hurt MAP sales in Brazil, with major players there reporting a big slowdown in sales. As yet, the Brazilian MAP price has not changed and this will be an interesting dynamic to follow because world phosphate prices are trended upwards, yet Brazil which is far and away the biggest MAP consumer is seeing demand declining drastically.
In general phosphate availability remains tight and Southern Hemisphere buyers coming into their season are needing to pay up or risk not getting product in time.
Potash
Brazil Potash price drops as lower Chinese and Indian prices are followed
The potash market continues to digest the recent Indian and Chinese annual contract price settlements. The most significant development this week was the almost $10 drop in the Brazilian potash benchmark to around $300/t CFR. With potash sales remaining very slow, producers are hoping that the lower price will stimulate buying from Brazil as the summer season approaches.
The South African price is sitting just above $320/t CFR with importers chasing business as sales for the new season have been quite slow so far. Once the effect of the annual potash prices has been absorbed by the various major regional benchmarks, we expect some price stability and producers will be targeting some price increases from Q4.
General Market Outlook
Energy prices and crop fall quite sharply
Global recessionary fears, led by some poor economic data from the US, have pushed Brent Crude Oil prices lower. Brent Crude oil prices dropped as low as $76/bbl during the week and are currently trading at just over $79/bbl. In the long term correlation, a lower oil price, should it be sustained for 6 months or more, should translate to lower fertilizer prices.
Moving contrary to oil price trends, the European TTF gas price has risen sharply in recent weeks on the back of concerns around Russian gas supplies to Europe after the recent Ukrainian offensive. The TYTF index has jumped from $10/MMBtu to almost $12.5/MMBtu – this puts most EU nitrogen capacity in a loss-making position. USA natural gas prices remain low at $2.1/MMBtu.
The last few weeks have been a horror show for international crop prices – maize is more than 5% down on the CME, and soya has lost almost 10% in the past 2 weeks. Fortunately on Safex prices have been more resilient and while prices have declined slightly, the extent of the drop has been much less than the international dollar prices.
Latest Direct Hedge quotes for Urea and MAP Swaps in USD:
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