Nitrogen
The Middle East Urea price took a big dip as the Indian urea tender was finalised. The outlook is for urea prices to firm now that a meaningful volume has been committed under the tender and taken out of the market.
The Indians counter-offered to all the tender participants at the lowest price they received in the tender (equivalent to around $650/t FOB Middle East), and have contracted about 875,000t at that price. This is a little short of the 1 million tons that they were looking for. Traders are confident that the tender has now mopped up all the cheap tons in the market and will tighten the urea supply-demand balance a bit. They are optimistic that urea prices will now strengthen through the remainder of the year. Our views are less bullish and while we agree that prices are likely to trend upwards through to December, buyers are not under as much pressure to pay a premium to secure volumes and the outlook is for more than ample supply of urea in the market. Thus we feel the upward rise in urea prices may not be as rapid as many market commentators (and producers) like to suggest. Having said all of that, the probability of urea prices declining in the next 3-4 months is very low, so we would advise against delaying urea purchases.
Urea prices in markets like Europe, the USA and Brazil all saw slight increases this week. The logic behind these rises is that many producers are now holding back on remaining volumes after their sales to the Indians, therefore buyers in those markets are active. There are also local drivers in each of those destinations that support higher prices. In America the closer of the Mississippi to barge traffic for winter is a looming deadline; in Europe high gas prices mean complete dependence on imported urea; and in Brazil the summer rainfall season is now underway and urea consumption is rising rapidly.
Granular ammonium sulphate saw a small increase this week as price ex-China rise as Europe and South America increase their amsul purchasing. Despite the reduction in urea pricing this week, amsul is still trading at a discount versus urea, so further price increases for amsul should be expected.
Ammonium nitrate prices rose moderately this week, primarily because of the European situation where all ammonia production is down and any domestic AN production is dependent on imported ammonia. With the European stocking season starting to kick off for Q4, demand for AN/CAN is rising and supporting prices. How long AN will continue to trade at a premium of double urea remains to be seem.
The ammonia market experienced minimal trading again this week. Most buyers have adequate stock positions for the short term and producers are not under pressure to discount to shift volumes. The ammonia price is expected to stay at current levels for the next month.
Phosphates
It was another soft week for Phosphates prices, with declines seen all around the world. Producers face the threat of overflowing inventories unless they can stimulate sales volumes.
Many of the same themes in the phosphates market continued this week. The only upturn in prices was seen in the American barge trade of phosphates, which is being driven by urgency to move product into the Cornbelt before the river system closes for winter. Apart from that, all other major markets registered reductions in MAP and DAP prices in the order of $5-25/t down.
Indian buying activity is now slowing as their phosphate inventory level is now rising steadily. The other major regions are experiencing high stock levels and weak demand, which is driving the ongoing downturn in prices.
The major Latin American markets are all seeing MAP and DAP prices drop by $20-30/t per week and these reductions have not yet been sufficient to stimulate serious buying interest.
In the Middle East, the Ma’aden mega-plant is also seeing sales slow and reports indicate that it may have as much as 350,000 tons of phosphates still available for October. In September, the Saudis placed 120,000 tons into Brazil and Argentina, which are already falling, and the balance into South Asia. With all these markets now saturated, all of the major producers are going to face serious pressure to discount to keep their products moving. While no producer or trader enjoys discounting, the reality of the phosphates market, and the whole fertilizer market, is that prices remain at very high levels and all producers, other than European nitrogen producers, are enjoying extremely large profit margins. The most profitable compromise is thus for producers to maximise volumes and if that means conceding a few dollars on the selling price, then so be it.
Potash
Potash prices took a $60/t hit in Brazil this week as Potash prices continue to drift downwards.
The Brazilian potash price is now testing the $700/t level as it heads downwards. The various regional prices are now out of sync with each other, which means that regions such as South-East Asia are likely to see big reductions. Potash producers will naturally target the regions with higher prices but the increase in supply to those regions will cause the price to fall – normal commodity price behaviour.
What will be encouraging potash producers is that Brazilian domestic sales are reportedly picking up as the summer season gets underway. While this is not expected to push potash prices up, higher demand may at least slow the rate of decline in the price.
The Brazilian price is now around $150/t lower than the Durban CFR price, so there is likely to be downward pressure on the South African price. If South Africa stays above the other regional prices then potash producers or traders may well target this market with additional cargoes, which will have the effect of reducing price in any case.
General Market Outlook
The Rand has remained weak against the Dollar, holding in the R17s this week. Brent crude oil has been stable in the low $90s/bbl.
The threat of a rail strike in the US caused a few jitters in the crude oil price but that has been averted for now, and the oil price has traded in the low-$90s/bbl this week. The European TTF gas price dropped below $60/MMBtu earlier in the week but has risen to $62/MMBtu in the last few days. The US natural gas price experienced some volatility during the week but has settled back down to $8/MMBtu where it started the week.
The strength of the dollar versus other currencies is also impacting fertilizer prices, as affordability in local currency reduces and demand starts to shrink.
The US Department of Agriculture published an update of its WASDE report at the start of this week, which showed reduced maize and soya planted acreages in the US, while the wheat acreage was unchanged. This boosted maize prices on the CME, particularly for December contracts, and soya enjoyed an even bigger rise. On Safex the response was muted, with white maize trading slightly up but yellow maize staying flat. Sunflowers came down almost 2% while soya showed the biggest gain with a 4% leap week-on-week.
Latest Direct Hedge quotes for urea and MAP swaps in USD:
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