Nitrogen
Urea prices were mostly flat this week, with the US price showing some upwards direction as traders start to think about top-dressing demand in that market
The Urea market saw prices still settling down after last week’s Indian tender, with different markets moving in different directions. Most of the market moves were by small amounts, so generally prices didn’t shift by much. The Middle East urea price average was unchanged overall but the spread between high and low widened as producers targeted different markets – some yielding slightly higher prices than last week and other destinations were lower.
The US was the only high point for traders this week, with prices moving up $15-20/t as domestic deliveries pick up pace with farming conditions improving and fertilizer applications getting underway. The pre-plant urea requirement is covered with existing stocks and vessels already booked, so traders are now considering the top-dressing season and what that might look like. Indications are that the US will plant a bigger acreage than last year, which will all consume some urea – however with the outlook for cereals for this year not being all that optimistic, application rates for top-dressing might be lower. Our feeling is that this US buying activity is driven by current price levels and traders seeing an opportunity to position themselves at what they believe to be low prices.
It was interesting to see reports out of Australia this week where the Aussies are delaying their urea buying for their next season and relying on the minimum contract supplies to keep them going for now. This is to consume high priced stocks already in-country and also because they believe that urea prices have got some distance to fall still. Australia is expected to have strong demand for fertilizer this year on the back of high yields plus floods last year reducing soil nutrient levels. This is probably a trend we will see in the SA market, although we are aware of a number of local urea enquiries floating around now.
Ammonium sulphate benchmark saw 2-5% declines this week as the bearish nitrogen sector applies pressure to amsul. China remains the big exporter at present and has been targeting South American sales. Ammonium nitrate markets remain a victim to an absence of demand, which is creating an oversupply situation, despite AN production in many countries being much lower than in recent years. The European CAN price fell €10/t this week as retailers complain about zero buyer interest.
Ammonia markets keep heading down, with prices now falling to the point that Chinese importers are interested and have started buying some cargoes. The Middle East and Far East benchmarks lost another $75/t, with the Middle East price now well below $400/t. The ratio between ammonia and urea is starting to look better for ammonium nitrate producers, whose costs are determined by the ammonia price and whose selling price is influenced by the urea price.
Phosphates
Phosphates market remains in slow decline with all regions seeing prices drifting down $5-10/t this week.
The long, gradual price slide for phosphates is being attributed to falling input costs (particularly ammonia) and demand remaining weak. Rising freight markets have pressured traders into negotiating hard to try and keep phosphate prices at least where they were last week but this is still a buyers’ market and sellers had to concede ground.
DAP prices in Europe are slowing trending down to try and catch up with other regions but sales volumes are very low and until these volumes pick up, sellers are not too interested in entertaining price discounts. Until buyers indicate that they are ready to purchase in large volumes, sellers would rather protect margins and not worry about throughput.
Trade data shows that Brazilian MAP imports are now 70% ahead of the same period last year. With demand not being too strong, Brazilian prices are sliding, which has impacted the prices in the origins that supply Brazil. Prices are expected to keep falling for at least the next month in Latin America – Argentina is also suffering with very poor demand due to economic pressures and the farming sector suffering with its worst drought in 60 years.
With phosphate prices having fallen around $500/t from their highs of a year back, China is now facing an interesting dilemma about its phosphate export ban. When they implemented the ban, there was a premium of more than $500/t on export sales compared to domestic sales. This was the basis of Chinese concern that there could be flood of exports and its domestic market would be left short of product (or forced to pay export parity prices). Now the delta between export values and the domestic Chinese price is less than $40/t, the risk of exports depriving Chinese farmers of phosphates appears to be minimal. Will China re-open exports in the coming months? If they do, it will likely accelerate the phosphates price decline and presumably a new equilibrium price will then be established.
Potash
The Potash sector remains under downwards pressure and prices keep drifting lower as demand is poor in all regions
The only glimmer of light for potash traders this week was the announcement of an Indonesian tender for 250,000t of potash. This tender was postponed in February as falling prices caused the Indonesians to pause. While this would be an appealing volumes to most potash producers, the probability of this establishing a new low price is high – and if a new low is achieved, then the Indian contract price is likely to target an even lower number. So we sit in a vicious circle where the only direction for potash seems to be down.
Brazil has led the potash market again this week, with prices there dropping $10/t to approach $450/t on the low end of the price range. Potash imports to Brazil remain active with sanctioned Russian product being the biggest source. Industry analysts are starting to talk up potash demand for Brazil’s next summer season, starting Q3, as giving support to stronger potash prices. This looks like wishful thinking in the face of oversupply of potash, a weakening outlook for crop values and the threat of the Indian annual potash contract price setting a low benchmark level.
The potash price in South Africa remained unchanged this week, bar the slightly stronger rand assisting with a few rands off the import parity costing.
General Market Outlook
Fears for the stability and resilience of the US banking sector and the threat of banking contagion spreading other economies has hit commodities hard across the world.
Crude oil prices plummeted this week, with the Brent Crude index dropping below $74/bbl and the WTI (the primary American oil price benchmark) falling below $67/bbl. Most of this fall is the consequence of a knee-jerk reaction by energy traders selling off their positions – oil is expected to be in oversupply for the first half of the year so any rebounds should be modest. Lower oil prices are likely to support lower commodity prices across the board, which means fertilizer price fundamentals, which do correlate strongly to oil prices, should continue trending lower.
The European TTF gas price saw a brief rebound to $17/MMBtu but then the news of the US banking crisis broke and sent the EU gas price tumbling back down to $13/MMBtu again. US natural gas prices have been remarkably stable considering the macro-economic turbulence this week and remain at $2.5/MMBtu.
CME futures unsurprisingly headed down this week with financial markets taking a beating and general pessimism flowing through commodity markets. Safex values were somewhat stronger, probably supported by general Rand weakness.
Shipping rates had been firming up in recent weeks, however economic pessimism and much lower oil prices are likely to see the shipping sector come under pressure too.
Latest Direct Hedge quotes for urea and MAP swaps in USD:
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