Nitrogen
Urea trading activity slows down as players focus on the Indian tender closing today (3 March). Other Nitrogen products continue drifting downwards to align with urea price levels
Urea prices were unchanged in almost all regional markets as producers and traders are either participating in the current Indian tender or holding back on sales in anticipation of what prices emerge from the tender. The 1 million tons being sought by the Indians under the tender is expected to be supplied by a combination of Middle East and Russian players.
The urea market is quite finely poised because prices have dropped around 20% in the last month, which is out of line with the usual seasonal trend (which is spring buying by the Norther Hemisphere). It is possible that the price drop is larger than the market fundamentals suggest, in which case the Indian tender could trigger a rebound in prices. Having said that, any rebound is likely to be fairly modest – we struggle to see urea lifting to much more than $350-360/t if it does in fact rebound.
Alternatively, the current oversupply in the market could see strong competition between producers and the outcome of the tender might be lower prices. In this scenario we believe that the downside on prices is fairly limited because prices approaching $300 (i.e. 10% down from the current $335/t level) would start to put enough producers under margin pressure that production rates might start to be cut back, thus tightening the supply-demand balance.
In summary for urea, we see prices sitting in the $300-360/t range for the next month.
The Ammonium sulphate market saw unchanged prices this week as trading activity was slow. On the other hand, Ammonium nitrate prices kept moving down as producers start to chase any sales that they can find, with cheap urea displacing a lot of traditional AN volumes across Europe. CAN prices shrank by another €20/t this week in Europe. AN prices are expected to keep declining in the coming few months as it remains much more expensive than urea on a unit of nitrogen basis.
The ammonia was the this week’s big news maker as prices tumbled across the regions. The Tampa contract price dropped $200/t from $790 to 590/t, while the Middle East price dropped $50/t and the Far East price lost almost $30/t. A number of large ammonia exporters are under growing pressure to shift volumes urgently or they will have to idle plants as they run out of storage space. There are likely to be some bargain opportunities for ammonia spot buyers this month.
Phosphates
Phosphates markets were all slightly down this week as sellers concede to buyers to keep trading volumes moving.
DAP prices lost around $5/t across all regions, driven by the same story as reported in recent weeks. The Indians are prepared to buy if incentivized by lower prices, while other Northern Hemisphere markets are still suffering from lower than normal demand for this time of year. Producers are wary of losing volumes – this time a year ago, phosphates were 50% higher, so higher margins compensated for volume loss. With lower prices, producers need to drive volumes to remain in the black so we are seeing phosphates players treading on the fine line between margins and volumes.
The Brazilian MAP market that had been flat for 7 weeks as speculation rose of the Brazilian Safrinha season being strong enough to see phosphate prices rebound – which was ended this week as high domestic stocks pressured local traders/sellers into offering a $5/t discount.
As mentioned previously, falling input costs are giving ammonium phosphate producers some relief, however it seems that their customers are demanding that these savings are passed on to them.
Potash
No sign of the anticipated Indian annual Potash contract price settlement leaves the Potash market awaiting a price signal
With most Potash producers banking on the Indian annual potash price establishing a floor price that will slow the down-trend in pricing, the delay of the contract price is allowing the price to keep falling. Most regional markets, including Brazil, saw reductions of around $20/t in the potash price, while Europe saw prices down almost $40/t as European price levels remain the most expensive worldwide.
China usually operates under an annual contract price agreement with the major potash suppliers, similarly to India, but it showing no interest in entering into negotiations around potash. This is a clear sign that the Chinese are confident enough that prices are headed down and ample spot supply is available to them, such that they do not need to guarantee supply via a contract.
The short term outlook for potash prices is for further price declines.
General Market Outlook
Another quiet week for macro-economic indicators, with even the Rand finding some stability against the Dollar.
Brent crude oil traded in a narrow band between $82-84/bbl this week. The outlook for the next week or so is for oil prices to climb moderately as concerns of a massive US interest rate hike have eased and Chinese demand for crude continues to strengthen. European energy markets enjoyed another week of gas prices reducing as the TTF gas price dropped below $15/MMBtu. US natural gas prices have firmed from $2.3/MMBtu to sit at $2.8/MMBTU presently.
The outlook for cereals and oilseeds has turned bearish in recent weeks as the US forecasts point to the highest acreage planted in 9 years for the 3 main crops. Brazil is expecting a very large crop in the current growing season and Dollar strength versus other currencies, particularly emerging Market currencies is all pointing to falling Dollar values for maize, soya and wheat.
Safex saw even bigger declines in maize, soya and wheat values as the local market reacted to international sentiments.
Latest Direct Hedge quotes for urea and MAP swaps in USD:
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