Nitrogen
Short-term outlook for Urea indicates even lower prices, before prices recover through the second half of the year
The biggest story in urea circles this week is the launch of the latest Indian tender, which was originally slated for late April/early May. It was pushed back because Indian domestic urea stocks are very high and it served the Indians to postpone and thereby contribute to urea prices falling. As always, the Indians have been very astute in placing this tender – it was previously indicated that they would target around 1 million tons but they have revised that down to 800,000 tons. This will have the effect of raising competition between bidders because even fewer tons are up for grabs. The Indians of course have the option to increase the purchase volumes, especially if the tender price is very low, which seems likely to be the case.
From an overall urea market perspective, the Indian volumes will not be sufficient to take up all the oversupply so there will be a frenzy of activity to access the Indian volumes but prices will probably be lower than current levels. The Middle East urea price was steady at $295/t this week but Russian and Chinese prices make an Indian price of $285/t possible (which would equate to $260-270/t Middle East). With a fierce bidding war, the Indians could well achieve a price around the $270/t mark.
Most other major urea regions saw substantial declines in price of between $15 and 40 per ton this week. Most of the movements are adjustments of those markets aligning with the lower prices seen out Russia, China and now the Middle East.
Ammonium sulphate prices took a sharp step down this week, with the Chinese benchmark price dropping around 10% for both granular and crystalline grades. This price movement is being driven by the weakening outlook for urea/nitrogen values and the Chinese inventory positions getting ever-larger. The producers are pinning their hopes on the Southern Hemisphere buying season kicking into high gear soon. We also see that local amsul inventory is quite low, with importers and traders sitting on their hands watching prices fall – time is running out for large bulk imports for the upcoming season.
Ammonium nitrate and CAN had a quiet week. European late spring demand remains muted and the Russians continue to target AN exports to Brazil at very low prices. Indications are that CAN prices will start drifting down as lower urea prices and slowing Northern Hemisphere demand impact CAN.
Ammonia saw a bit of action in East Asian markets as buying activity rose but prices have not yet responded in any meaningful way. The Middle East FOB price remains at $215/t FOB. Western market demand for ammonia remains subdued and lower gas prices in Europe make the restarting and ramping up of ammonia production ever more feasible.
We do see some red flags emerging on supply of imported fertilizer products and availability when the season starts. Falling nitrogen prices, and specifically falling urea prices, have delayed a lot of local buying activity, which is understandable given the pain of record prices last year and the desire to buy as cheaply as possible this year. However, our view is that urea prices will bottom out soon and start to climb again over the 2nd half of the year. Concerns over the potential impact of El Nino on summer rainfall and weakening international grain prices all add to the rationale of delaying fertilizer purchases. This is all building up to a very late fertilizer import season, which means a mad rush in a very limited timeframe for all the importers to bring in the required volumes before the season is over. This will lead to port congestion and delays (and big demurrage costs that will be passed onto growers ultimately), plus pressure on road logistics to move fertilizer away from the ports (equals higher road logistics costs). At some point the benefit of sourcing lower cost fertilizer at an international level is more than offset by increased local costs – and we cannot lose sight of the fact that there is a deadline for fertilizer application on field; we cannot delay buying and importing indefinitely. We foresee some periods where certain products stock out in between vessel arrivals and also local price spikes due to product shortages.
Phosphates
The price decline in Phosphates shows no signs of slowing yet, as most major markets see reductions again this week
This week saw Chinese exporters start to impact global DAP prices, as the Chinese export price fell $25/t with Chinese producers moving quickly to fix deals as their domestic season has ended and the removal of export restrictions allows them to look abroad for business. Lower Chinese prices dragged the whole DAP market lower, with price drops being seen in the USA and India as a consequence.
Brazil enjoyed lower MAP prices this week, as another $30/t price cut was seen. The causes of this reduction were the same as last week – a busy import lineup, high port stocks and slow sales into the interior. The Saudi MAP price moved in sympathy with the Brazilian price, falling $30/t too. This pushed the import parity costing of MAP into Durban below the R10,000/t mark for the first time in 2 years. An overview of the Ma’aden (Saudi) MAP production versus sales balance indicates that only 25% of the expected production for June has been sold so far.
The ongoing pessimism around crop prices for the next 6-9 months is also contributing to negativity around phosphates as phosphates application is seen as the first cost-cutting option for many farmers. The outlook for phosphate prices remains bearish, with the price expected to keep drifting down. This is encouraging local players to delay purchases – unlike urea or potash, the local market is less dependent on imported phosphates, so delaying MAP purchases is a less risky tactic currently.
Potash
A rare week of stability seen in international Potash prices but further declines in most regions look inevitable
While there were no meaningful prices changes this week, the outlook for Potash remains bearish, and South East Asian price looks set to move down soon, which will probably drag most other regional benchmark prices down with it.
Speculation flowed about the Brazil price having bottomed out this week but that seems unlikely given Brazil being the market of choice for sanctioned exports from Russia and Belarus and the worsening outlook for crop prices impacting Brazilian demand for potash at the farm level. Brazilian potash demand at this time of year is strongly linked to soya planting and soya prices have headed south over the past 6 weeks. There are rumours of Brazilian potash imports as low as $330/t CFR, which have been predictably denied by all the major potash traders. It seems unlikely that the end of potash price reductions has not been reached just yet.
The South African CFR price saw a chunky $30/t reduction this week as the major importers roll up their sleeves in preparation for the upcoming season. In Rand terms, the local potash list price is now around the R9,000/t mark, with better deals no doubt available for big orders.
As with imported nitrogen products, the tactic of local buyers to delay potash purchasing in pursuit of ever lower prices is ratcheting up the risk of supply issues and product unavailability come season time in our view. While the continued decline in international potash prices is probable, the reality for local growers is that they need potash by planting time – and the slow volume of potash imports to date threatens potash availability. At some point the need to possess potash supersedes the financial desire for lower prices, and we believe that point is fast approaching.
General Market Outlook
Rand remains extremely weak, offsetting some of the benefit of lower international energy prices and shipping rates.
Energy markets remained steady this week - Brent crude oil eased down from $77/bbl to a low of $73/bbl during the week, and rebounded to $75/bbl today on the back of the US debt ceiling being lifted. There is an OPEC+ meeting in the next few days, where a decision to further cut back on oil production to try and lift oil prices is expected. The TTF gas price in Europe remains at 12-month lows trading at $7.8/MMBtu. US gas prices remain around $2.2/MMBtu.
The Rand has recovered slightly in the past few days after almost breaking the R20:$ threshold earlier in the weak. The weak Rand has helped some of the local cereal prices but oilseeds remain under severe pressure both at home and internationally. These recent events with the Rand are an ever-present, and perhaps increasing, trend in our economy – it does reinforce our concern about the exposure of our growers to the exchange rate as both inputs (fertilizer, diesel, chemicals and even seed) and crop outputs are dependent on the exchange rate. The Rand has devalued by over 10% in the last 2 months, which means that it has contributed to a 10% increase in the cost of inputs – in theory it should also have increased the value of crops by 10% too. But with international crop prices tumbling in recent weeks, how many growers have locked in crop prices or the exchange rate to protect themselves against the risk of the Rand strengthening between now and harvest time?
On the shipping front, the gloomy macro-economic outlook is impacting shipping rates and seeing rates coming down quite markedly in recent weeks. China is the biggest single contributor seaborne cargo volumes and its declining economic outlook is impacting cargo volumes, which in turn is leading to lower shipping rates. This is good news for the cost of imported fertilizer, although much of the gains are being eroded by the weak Rand.
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