Nitrogen
Nitrogen markets saw little trading this week as attention is directed to the Indian urea tender closing today. An easing of natural gas prices in Europe took the urgency out of European buying.
The Indian urea tender for 1 million tons closes for offers today and has received offers totalling 2.25 million tons, showing the degree of interest from producers and traders in securing these volumes. The outcome of prices will provide a baseline for urea prices for the next week or 2, so urea buyers chose to pause this week and see what comes out of the tender. The general feeling is that urea prices will be lower than last week, and European natural gas prices falling this week helped to cool off the panic buying of a number of European companies. Tender prices are speculated to be below $700/t CFR India, which would equate to Middle East FOB values in the mid-$600s – compared to the current Middle East price of $725/t. So there is a strong possibility of a $50-75/t cut in urea values in the next week or two.
Urea prices in some major markets saw small reductions at a local level – Brazil saw prices drop around $20/t on the back of very slow trading. Half-year trade data to Brazil shows that nitrogen imports have dropped almost 20% year-on-year, which indicates that the high urea inventory situation should be starting to unwind. This will be good news for producers targeting Brazil.
Tanzania recently held a urea tender, for which the lowest offer was $722.2/t CFR Dar es Salaam including 180 days credit – this compares with the current Durban equivalent of around $760/t CFR. The Tanzanians did well to benefit from the $100-150/t lower urea prices seen a few weeks back.
Ammonium sulphate made some strong gains in price this week, as it catches up with nitrogen values in other products. Demand for amsul is seen as rising in South America (Brazil) and in South-East Asia. European CAN prices rose $35/t, driven by some late season farmer demand and restocking.
The ammonia market also saw limited activity this week but with European capacity down, the market is still seen as being firm with respect to price over the next month or so.
In terms of urea imports into South Africa, July was a very busy month with more than 130,000 tons of urea coming into the country. This surge in cargoes brought the year-to-date (Jan-July) imports to almost the same level as the same period last year, 390,000 tons YTD compared to 405,000 tons Jan-July 2021. Ammonium sulphate imports followed a similar trend with a big jump in July and YTD amsul imports are now sitting at over 180,000 tons compared to around 150,000 tons in the same period last year.
Phosphates
The outlook for phosphate prices is negative as the same story of weak demand in most regions is repeated. Indian buying of DAP has been the only meaningful buying activity but even the Indians are starting to see rising inventories.
Phosphate prices meandered down in most major markets again this week as the current price level discourages demand. The one small exception was the US market where limited availability and the looming river winter closure supported higher prices for DAP – not a trend that is likely to persist for long.
India bought another 400,000 tons of DAP this week, bringing its YTD imports to around 5.8 million tons, compared to 4.7 million tons in the same period last year. Indian buying is likely to start easing down in the coming months with so much supply arriving. Which will leave phosphate producers chasing the remaining markets, all of whom showing very little interest. A very telling indicator of the extent of demand destruction is the struggle the Chinese are having in selling any of their 1.1 million ton phosphate export quota for Q4. Similarly, OCP in Morocco has seen a 14% drop in export sales YTD, while adding 1 million tons of capacity this year – this against a backdrop of the market expecting severe availability issues after the Russian sanctions.
The outlook for phosphate prices remains negative and it is becoming ever clearer that substantial reductions in price are needed to stimulate demand. Market analysts are suggesting that MAP and DAP prices could find an equilibrium (between supply and demand) at around $500/t, especially if the Chinese returning to exporting at historical volumes. With Middle East MAP prices in the mid-$700s currently, this points to the possibility of a big correction in the next year.
Potash
Potash prices continue on their slow downward trajectory this week, with prices in most benchmark regions showing reductions. The underlying story is the same with weak demand and increasing availability from Russia influencing price.
With weekly price cuts now becoming in all regions, the outlook for potash is even more bearish than before, with analysts indicating that potash could drop from the current low-$800s to the low-$600s by the end of Q1 next year.
The local market is still absorbing the large price cut seen last week but early indications are that sales have picked up and the price cut has had the desired effect of stimulating buying interest. Warm weather and the onset of spring is also in growers’ minds with land prep and planting getting underway.
General Market Outlook
Another painful week for the Rand against the Dollar as it touches R17.50. Crude oil continued the down-trend started last week, with prices falling into the $80s/bbl and dragging natural gas prices down with it.
Oil prices fell further this week as the G7 nations attempt to cap Russian oil revenues, creating a lot of political posturing back and forth. The market clearly believes that crude oil supply will be increased as a result of whatever constraints are imposed and the oil price touched on $88/bbl earlier this week. The European gas price fell back to $65/MMBtu as last week’s panic subsided – however the fundamentals have not changed for Europe. The Nord Stream 1 gas pipeline from Russia remains closed and Europe looks very short of gas supplies as it heads towards winter. The US natural gas price followed the oil trend and declined from $9/MMBtu to $8/MMBtu.
The rand followed last week’s 3.2% fall with a further 1.3% drop this week. The rand has devalued more than 20% in the past 6 months. Considering that our fertilizer prices are underpinned by import parity costing, this devaluation has contributed directly to the cost of fertilizer. We maintain that currency (US dollar) exposure is a key risk for Southern African growers to manage, as it impacts the cost of all the major agricultural inputs.
The CME maize price gained 2.4% in the week as yield projections for major production regions continue to decline. Safex values for September white and yellow maize showed similar gains of around 2% this week, which has to be considered against at least 1% of that gain being eaten up by the weaker rand. Soya and sunflowers dropped week-on-week, apparently driven by the resumption of food oil exports from Ukraine.
Latest Direct Hedge quotes for urea and MAP swaps in USD:
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