Nitrogen
Urea markets showed strong upward movement for the 5th week in succession
Urea prices are now showing some proper momentum as prices rose 7-8% in almost every region this week. This is being ascribed to supply tightness in the East, led by plant outages in Indonesia and Brunei. With demand picking up in Latin America and Australia, expectations are that these factors will combine to sustain the run up in prices for the next 4 weeks at a minimum. The next Indian tender is also a supportive factor to prices; the only possible counter to these prices in the short term is the unknown of how much urea the Chinese may export in the coming weeks as falling coal prices reduce their production costs and their domestic urea market goes into a seasonal lull.
The Brazilians have been actively buying, with trades as far ahead as September being agreed this week. The Middle Eats urea price rose above $330/t on the back of these sales, and the September trade to Brazil gave an equivalent Middle East price of $350, which gives a strong indicator for August urea pricing.
Egypt continued to lead the pack in terms of pricing, with prices of up to $380/t FOB being realized this week. Some of these expensive Egyptian sales are for small volumes, which always makes them questionable in terms of traders using loss-leading transactions to manipulate the published prices for the benefit of formula-pricing. Egyptian prices are said to be driven by European demand but nitrogen consumption in Europe is very quiet and EU gas prices have also settled down again, so this does not really add up.
The only consolation for local urea buyers this week was the sudden strengthening of the Rand, which gained almost 7% against the Dollar. This was the same extent of the international urea price increase, so the import parity cost of urea remained flat.
Ammonium sulphate prices enjoyed some firm upward movement as prices of both crystalline and granular grades increased by close to $20/t. Most of the price support came from increasing nitrogen values in the market courtesy of urea prices. But there is also strengthening demand for amsul, especially from Brazil and the other Latin American countries as their summer rainfall season approaches.
The effect of higher urea prices is starting to impact ammonium nitrate and CAN prices. On CAN, the higher end of the price range in Europe showed a gain of almost €30/t. Straight ammonium nitrate prices are also on the rise as the price out of Russia is getting support from Brazilian buyers.
Ammonia prices continue to diverge from the rest of the nitrogen products as prices remain flat. With European gas prices falling, EU domestic ammonia production is likely to increase and thus decrease European interest in ammonia imports. This should have a negative effect on prices. However with urea clearly on an upward trajectory, how long will ammonia buck this trend?
Phosphates
DAP prices keep heading down across the various markets, while MAP prices turn around and strengthen
This week saw an unusual divergence in price direction between MAP and DAP. DAP is the bigger brother as it is produced and consumed in much greater volumes than MAP, and for this reason MAP has tended to trade at a slight premium historically – MAP also has a higher content of the more expensive P nutrient, which in theory justifies MAP being more expensive.
What we have seen this week is that the broad phosphates market remains oversupplied and prices keep heading down – DAP being the most widely traded and used phosphate is the evidence of this. MAP, which is the phosphate product of choice in many of the Southern Hemisphere markets including Brazil, is seeing demand pick up as the Southern Hemisphere summer rainfall season approaches. Increased buying of MAP is driving prices up with Brazil seeing a $20/t increase this week. This translated into a $20/t increase in the Saudi price, which we use for South African import parity pricing.
The big question is whether this divergence between MAP and DAP will persist for the next few months or is it a short term phenomenon? If MAP gets significantly more expensive than DAP, then some substitution will take place that will suppress MAP prices and possibly support DAP prices, although it would need a huge amount of additional DAP to be bought to lift the DAP price. Brazil does have large inventories of MAP from its heavy buying programme already this year, so they are unlikely to be pressured into accepting big price increases.
As always with phosphates, it is important to monitor what the Chinese are doing. This week’s news is that their phosphate industry operating rate is touching on 60% (up from just over 50% last week), which is a clear signal of increasing exports to be expected in the coming weeks. More exports from China will depress phosphate prices. Perhaps the MAP price run will last a few more weeks but unless there is a drastic cut back in supply, the fundamentals continue to support weakening prices.
Potash
Canadian Potash exports under pressure as strikes impact ports and some major mines are idled
Brazil showed some small increase in potash pricing again this week, albeit on a couple of dollars. With the lead-time from the major potash production centres of central Canada and Russia being 6-8 weeks, potash analysts are increasingly sceptical about any major new potash purchases reaching Brazil in time to be offloaded, distributed and blended in the Brazilian interior for the September planting.
The majority of Canadian exports, which make up around 35-40% of globally-traded potash, are exported through the port of Vancouver on the west (Pacific) coast of Canada. The port has been closed since 1 July due to strike activity, which has brought Canadian potash exports to halt as well. With global potash markets well-supplied with product there is little impact on the price but a sustained absence of the Canadians could cause potash prices to rise, especially towards the 4th quarter when the Northern Hemisphere demand picks up.
The big news for South Africa was the announcement of a 35,000 ton cargo of Russian granular MOP booked for Durban. The product will arrive in the first half of August and the price is reportedly around $365-370/t CFR Durban. This about $40/t cheaper than the regular sources of non-sanctioned potash, which is the obvious motivation to do this deal. It is unclear what consequences there may be for buyers and consumers of this product coming from Russia.
General Market Outlook
US Economic data shows a faltering economy as crude oil gets more expensive. A sharp recovery in the Rand gives some short term good news.
The steps taken by the OPEC+ cartel to curb crude oil production played through into the Brent crude price this week. Prices rose steadily all week from $78/bbl to $81.5/bbl. Oil supply disruptions in Libya and Nigeria added further to the bullish sentiment around pricing. European gas users were glad to see natural gas prices continue to decline as the EU TTF price improved sharply down to $8.7/MMBtu. In the US natural gas prices spiked midweek to $2.8/MMBtu but eased down to close the week at $2.5/MMBtu.
The Rand benefited from the slowing US economy and lower US inflation data this week – the Rand recovered over 6% against US Dollar. The Rand looks like ending the week at below R18 to the Dollar, which is welcome news for farmers as this reduces the cost of all of the major agricultural inputs.
Crop prices continue to be under pressure both internationally and locally. The main cereals all lost 1-2% on the CME this week and losses of these cereals on Safex were even greater. The upward blip of the Rand is yet to be felt on Safex prices but if this recovery of the Rand is sustained, then local values will likely decline even further. Soya has been the only crop to show some price strength this week as many grain traders are sceptical of this this season’s real potential and have been taking longer positions, which have supported prices.
Latest Direct Hedge quotes for urea and MAP Swaps in USD:
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