Nitrogen
The Nitrogen sector remained stable this week as urea traders digest the Indian tender award
The Urea market experienced a quiet week with only moderate trading volumes, which resulted in prices broadly staying in the same range as last week. Some industry commentators are suggesting that a temporary floor price has been reached but this is optimistic in our view as the potential downside factors to price heavily outweigh any upward drivers. The Middle East urea price dipped $10/t to approach the $300/t level – this makes Middle East urea about the cheapest urea on the market outside of sanctioned product from Russia and Iran.
The mini bull run on urea prices in the US has come to an end as the market fundamentals did not justify higher prices. With crude oil falling, another US interest rate this week, concerns around the US banking sector and a gloomy outlook for US crop prices, American fertilizer prices all ran out of steam this week.
Most producers have now secured adequate sales for April to be comfortable with their stock positions. There were some attempts by producers in certain markets to try and push urea prices back up into the $330s/t but this was unsuccessful. It looks like urea prices should be settled at current levels for the next week or two while contract and tender deliveries are executed, but thereafter we expect to see downward pressure building again.
Ammonium sulphate prices carried on meandering downwards as the big Chinese exporters hunt for business and demand dynamics from the Brazil and South East Asia, who are the traditional customers at this time of year, proving to be poor. Amsul is also playing catch up with urea, which has dragged nitrogen values down and is leaving amsul looking quite expensive by comparison.
Urea values are also impacting Ammonium nitrate prices with both fert-grade AN and CAN falling this week. CAN dropped more than 10% as European producers get increasingly anxious about their sales volumes as the spring application season draws to a close in many parts of the EU.
The Ammonia sector enjoyed a calm week after recent weeks of tumbling prices, with most benchmark prices remaining unchanged from last week. There was very little trading activity and no meaningful price changes are expected until next month when the next fortnightly Tampa contract price is negotiated. The broad industry view is that ammonia still has some way to go before the price bottoms out.
Phosphates
Phosphates prices remain in gradual decline and the outlook for prices is pointing to prices falling further during Q2.
Phosphate prices keep drifting down due to a variety of factors. Raw materials prices and energy costs have been falling, reducing costs of production. Demand remains weak as a consequence of record high prices experienced in the past year, and increasingly pessimistic predictions for crop prices are encouraging farmers to minimize their spend on inputs, particularly on phosphates as it is the most expensive nutrient presently. The biggest buyers/importers of phosphates are already showing stock levels substantially higher than at the same point last year, which suggests that their buying is likely to slow down, at least until Q4 in the case of the big Northern Hemisphere markets. Chinese export data for the first 2 months of 2023 is showing a massive increase on the same period in 2022, albeit from a low base considering the Chinese export barriers. China is expected to focus on its domestic market deliveries for April but thereafter until at least September, China’s high phosphate stocks and huge production capability will increase its phosphate export availability.
DAP prices in Europe lost another $5/t this week but at $750/t, European DAP prices remain the most expensive anywhere, a good $130-150/t more expensive than other regions. With considerable stocks already in place and no demand, the opportunity for European players to force the price down by purchasing import cargoes is very limited. European importers cannot find customers for any meaningful volumes and would be risking increasing the size of their open DAP positions by importing more cargoes.
Brazilian MAP prices slid another $5/t down this week, carrying on the trend of the past month. Lower MAP prices in the importing countries are pressuring the FOB prices in origin countries. The Middle East benchmark price lost almost $10/t this week, and similar reductions are reported from Morocco and FSU producers. Even running at reduced operating rates, the large producers are building up inventories at a rapid rate – indications are that the world-scale Ma’aden plant in Saudi has more than 250,000t unsold and available for April. The Moroccans have more than 500,000t of phosphates capacity unsold for April.
The Indians now appear well-covered for their fertilizer needs, especially in the case of phosphate supplies, for the upcoming Kharif season which starts in late Q2. India also starts its new fertilizer year at the end of April, which will see a much (~40%) reduced fertilizer subsidy budget, which will force Indian buyers to pay lower prices or make huge losses on their domestic sales of imported phosphates. This is not great news for phosphate prices as India has been the biggest buyer in recent months and the Northern Hemisphere is about to head into its quietest demand period in Q2.
Potash
More of the same for Potash as sentiment around prices remains negative and trading activity is limited to hand-to-mouth buying from most regions
The overwhelming mood across potash markets is that buyers are too cautious to overcommit on potash purchases because of further price reductions expected in the coming weeks. On the supply side, there is ample availability of potash from a variety of origins, thus buyers are at no risk of not finding product if or when they need it.
There is still no evidence of the Indian annual potash contract price being agreed but the latest chatter is that the price level will be well below $450/t and possibly as low as $410-420/t. This is in line with South East Asian prices for standard grade potash. The Brazilian price for granular potash was unchanged this week and remains in the mid-$400s.
The most noteworthy news this week is that the Chinese are reported to be in discussions with the Belorussians, who remained sanctioned by the West, around a supply contract for the rest of 2023. Indications are that a price of below $400/t is being sought by the Chinese, which will add more downward momentum on global potash prices if it materializes.
General Market Outlook
Crop prices have been tumbling across world markets and are a major concern for SA farmers.
Brent crude oil floated in the mid-$70s per bbl this week. The price fell as low as $72/bbl before recovering to $76/bbl, and is currently at $74/bbl. The American WTI oil index is sitting at $67/bbl – oil prices remain under pressure due to economic concerns in the US. Gas prices in Europe fell almost 6% in the week and now trade in the $12/MMBtu range, very good news for EU fertilizer producers’ costs. Henry Hub natural gas prices in the US eased down as warmer weather resulted in less drawdown from strategic gas storage and sent prices to $2.1/MMBtu.
Dollar weakness following the US Fed raising interest rates and the ongoing fallout of some American banks failing has seen the Rand regain some ground against the Dollar. The Rand strengthening by around 1.5% on the week helped all local fertilizer prices move down a little.
Crop prices took a beating to rival the English rugby team this week. The only index not to plummet was the US CME Corn price which was only slightly down on the week. Safex numbers for cereals and oilseeds saw huge reductions – white and yellow maize were down 5-6%, soya dropped by 6% and sunflowers fell a massive 15%. These dramatic drops were driven by weakening international crop values and the delayed effect of recent Rand devaluation coming through.
Latest Direct Hedge quotes for urea and MAP swaps in USD:
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