Nitrogen
The outlook for Urea prices remains bearish as major producers look towards next week’s Indian urea tender. There is doubt that the tender volume will be large enough to boost prices.
Most of the major urea-producing regions showed small prices reductions this week, as demand continues to be a lot lower than the market expected and hoped. With November and December being the peak demand months in the annual fertilizer cycle and demand continuing to be weak, many players are voicing concerns that urea will not enjoy any upturn in price through this period. Barring any unexpected oil price shocks or plant outages, the urea price appears likely to fall steadily once we are passed the seasonal peak (i.e. from February onwards).
The Middle East FOB urea price was assessed at $15/t down this week, breaking through the $600/t level for the first time since July. There is speculation that next week’s tender could see prices below $600/t CFR India, which would translate to a Middle East price of $550-560/t. The Forward market already has Middle East urea at $540/t for December. Thus there are a number of indicators pointing to lower prices in the next month or so.
With prices falling in the big target markets of Brazil, USA and Europe, the Indian tender will be targeted by most of the export producers. Fierce bidding to secure some of the only current spot demand could lead to another hefty price reduction.
Ammonium sulphate prices saw a minor reduction as a number of tenders around Asia are open. With amsul continuing to trade at a discount to urea and urea prices apparently on the slide, amsul prices are likely to continue heading down. Ammonium nitrate prices have seen more, large downward adjustments as the price moves closer in line with urea and the wider nitrogen market. CAN in Europe was slashed by more than $50/t this week but buyer interest remains limited. With high stocks of urea already in Europe and European AN producers ramping up production as natural gas prices have declined, CAN/AN producers will be discounting heavily to attract buyers, who are currently spoilt for choice.
Some ammonia buying activity has emerged from a few Asian countries, which has brought some positivity to the ammonia sector. Prices however have remained unchanged and it is difficult to see producers succeeding with any increases, given how the rest of the nitrogen sector is seeing prices falling.
Phosphates
Phosphates prices fell in North America and Europe this week, as the sentiment around Phosphates remains negative.
The North American and European phosphates prices have lagged the downturns seen in most other regions over the past few months, so this week’s reductions bring these markets more in line with the international price.
The largescale Indian buying of MAP and DAP for November and December demand is now complete, so Indian demand will not appear until early in the new year. The Brazilian MAP price was unchanged this week, which is more a reflection of the lack of trading/sales activity than an indication that the supply/demand balance may be stabilizing. The US is reporting that its phosphate market is tightening up as a result of production outages in Florida following last month’s hurricane. While this is unlikely to send prices shooting up, it does mean that US exports will be limited.
Saudi Arabia has reported some production cutbacks too, due to one of their ammonia plants suffering a breakdown and with China phosphate exports restricted by its government, there is a degree of tightening supply around the world. This may be enough to slow the rate of decline in prices but until strong demand starts to appear, no one is expecting phosphate prices to rebound.
Potash
The Potash market maintains the trend of steady price reductions again this week.
Brazil continues to be at the forefront of downward adjustment in the potash price, with $15/t cut from the price. Potash sales are now taking place at $550/t on the low end of the range in Brazil. Price reductions of similar magnitude were seen in all other major potash markets this week.
With adequate potash supply into all regions, buyers are now confident to delay purchases and keeping purchase volumes to their minimum requirements in order to keep potash prices sliding down. Producers seem to have little option but to accept the steady decline in prices.
Indications for global potash consumption for 2022 are that around 63 million tons may be consumed, which is 9-10 million tons lower than 2021’s total demand. The cause of this reduction is purely high price – high prices have encouraged farmers to apply less potash and thus demand has been reduced. The global operating rate of potash capacity is estimated to be well below 70% this year, which also points towards the need for lower prices to incentivise demand.
General Market Outlook
Brent crude oil firmed early this week on the back of China easing Covid restrictions but prices softened later in the week on the back of pessimism in the US economy.
Brent Crude prices rose to $99/bbl at the start of the week as the market anticipated Chinese demand firming. However poor economic data from the US and increased supply of crude around the world caused prices to slide back to $95/bbl. The Energy Information Administration, which is one of the foremost energy commentators, has revised its oil forecast for 2023 to $95/bbl. Looking at natural gas, the European TTF gas price turned back down this week, shedding $4/MMBtu from $37/MMBtu to $33/MMBtu currently. US natural gas prices have eased down steadily through the week, briefly going below $6/MMBtu and currently trading at $6.2/MMBtu after starting the week at above $7/MMBtu.
Most cereals and oilseeds had a tough week as international prices fell, mostly due to gloomy economic outlooks in the major economies around the world. The CME maize price fell almost 4% week-on-week. To compound issues for local growers, the rand recovered almost 6% against the dollar, which had negative consequences for local prices. The full effect of the stronger rand has not played through into local maize, soya and sunflower prices yet – nevertheless, these products all lost around 2% on the Safex this week.
Importers of fertilizer have seen some relief on shipping costs consistently over the past month as rates have come down around 20% in this period. This has been caused by lack of demand for shipping to China, as covid restrictions there have impacted demand for hard commodities and even closed some ports to shipping. The slightly lower oil price has also translated to cheaper ship fuel costs. The outlook for handysize ships (the approx. 30,000t class of vessels typically used to serve African ports) is fairly negative for the rest of the year and shipowners are not anticipating rates increasing until late in Q1 next year.
Latest Direct Hedge quotes for urea and MAP swaps in USD:
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