Nitrogen
Urea saw some large downward adjustments this week, with the Middle East price dropping by more than 10% from $640/t to mid-$500s. Sentiment around urea and nitrogen in general remains weak, with ample product available in most markets.
With urea prices moving so rapidly in different markets around the world, traders have been agile enough to take any arbitrage opportunities where they have popped up. The first ever export of urea from the US to India was fixed this week. The US urea season continues to disappoint, with reports emerging of as much as 4 million acres of maize not being planted/fertilized due to ongoing wet conditions. It now seems clear that US demand for nitrogen is going to be low this year and will not offer any support to urea prices.
In Europe, natural gas prices are dominating the headlines as Gazprom, the Russian gas producer and exporter, cut gas supplies to a number of European countries this week. With the majority of European nitrogen plants already having been shut for months now, this development does not impact the production and supply of nitrogen fertilizer within Europe.
Although the Middle East price was pegged at $555/t this week, there were numerous rumours of deals being done at lower numbers. Netback calculations base don the Brazil or US urea price benchmarks point to urea netbacks in the Middle East of close to $500/t. It is clear that there is a huge amount of downward pressure on urea prices and the next Indian tender scheduled for mid-July cannot come soon enough for producers!
Ammonium sulphate continued downwards this week, with the market being seen as very weak and further price declines inevitable. With amsul trading at a premium to urea, which is normal historically, falling urea prices will continue to drag amsul prices down. Ammonium nitrate markets were very quiet this week with small price drops being reported. Ammonium nitrate prices are holding up better than amsul and urea, mostly due to limited supply in Europe with Russian product largely absent and very little domestic European production because of sky-high gas prices.
The ammonia market remained subdued this week with minimal buying activity. The Middle East ammonia price saw a small downward movement but in general buyers seem to have adequate stocks. There is speculation that the latest spike in EU gas prices may stimulate ammonia imports and thus support higher prices but it is hard to see the Europeans buying big enough volumes of ammonia to push prices up.
Phosphates
Phosphate prices softened slightly this week on the news of more Chinese phosphates being offered for July. Demand for phosphates remains very weak and the small downward prices adjustments are not enough to prompt much buying interest.
Phosphate prices in Asia which have been sitting at around $1,000/t are now dropping into the high $900s as a number of government tenders have concluded in Asian countries. Chinese product coming back into the market is adding to the downward pressure on prices. Most Asian producers would rather hold back on sales rather than accept prices in the $900s but they won’t be able to sustain this position for much longer.
Trade data into Brazil is showing that Brazilian phosphate imports rose by more than 25% in the first 5 months of this year. This points to high stocks in Brazil and industry analysts are now wondering how aggressive Brazilian buying in Q3 will be, especially with Brazil being a popular destination for Russian phosphates right now.
In terms of local phosphate pricing, the rand losing over 3% to the dollar offset the small drop in the US dollar import parity value. With urea (nitrogen) losing so much value, the effective phosphate price increased by almost 3%.
Potash
Potash markets remain subdued, with Russian exports to Brazil continuing to surprise the industry as the volumes continue to be much larger than expected.
Global supply-demand balances now look much more evenly balanced for potash, so significant price increases for potash look extremely unlikely for at least the next few months. The extent of demand destruction and therefore the amount of stock replenishment needed for potash also means that any significant price drops will result in strong buying, so the possibility of a big downward correction in potash prices appears unlikely too.
Prices in Southern Africa haven’t moved for the past 2 months and the main driver of price has been the rand:dollar exchange rate. The next summer rainfall season is now on the horizon and buying activity should start picking up in the coming months. While it could be argued that prices should go up or down slightly for varying reasons, the probability is that local potash prices are going to hover close to current levels for a while, at least until there is a significant move in international prices.
General Market Outlook
Crude oil prices remain strong at the $120/bbl level. Soft commodities were steady overall with small movements seen in the various grains.
Brent crude oil eased moderately to $120/bbl as financial markets anticipate a big interest hike in US interest rates, which would cool the US economy and reduce oil demand. European gas prices were further rocked this week by the Russian gas exporter, Gazprom, cutting gas to a number of EU countries as the political arguments between the EU and Russia boiled over. Russia is blaming the failure of a compressor station (due to the EU refusing critical repairs and spares), while the EU says that it is a pure political measure by the Russians to drive up European gas prices. Whatever the truth may be, EU gas prices have raced back up to $30/MMBtu. US gas prices dropped from $9/MMBtu a week ago back into the $7.5/MMBtu range as the hype around the Louisiana LNG facility outage died down.
International maize prices were generally flat this week with conflicting information around the US crop size and quality. The local Safex maize price benefited from rand weakness and recovered a lot of the ground that it lost last week, rising 3% on the week. US soya declined this week on the back of profit-taking as traders tried to make the most of almost record highs at the beginning of June. The Safex soya price got some relief from the weak rand showing a small gain.
Shipping markets have continued to be volatile over recent weeks but the handy-size class has generally seen rates easing, which is good news for fertilizer buyers. Crude oil is a key determinant in the cost of ship fuel, so high oil prices will keep operating costs for ships elevated and are a concern for the industry.
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Latest Direct Hedge quotes for urea and MAP swaps in USD:
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