Nitrogen
Lack of demand for urea continues to push international prices down. A further delay in the issuance of the Indian urea tender has added downward pressure to urea prices.
A delay to the latest Indian tender has put producers (and some traders) holding long urea positions under selling pressure. Some of these producers have been adjusting their prices down in order to generate buying interest to keep sales flowing and avoiding a bigger stock build-up. Despite these price reductions, buyers remain confident that urea prices have further scope to move down and are not biting yet. There is speculation that the delay in the tender is due to ongoing activity by the Indian government to create a mechanism to buy Russian urea – if successful, this will drive urea prices further down. Despite the relative pessimism on urea, Indian demand remains very strong with purchases of over 3 million tons expected for Q2 – which will require a number of large tenders in the next two months to fulfill.
Another downward price factor for urea was the increasing availability of Chinese urea this week. While the volumes remain small, this was unexpected by the market and many are choosing to read this as a sign that the Chinese authorities are likely to allow increased urea exports soon.
Ammonium nitrate and sulphate continue to track urea and prices are softening week on week. This price drop is attributed to the seasonal lack of demand that is typical of Q2, and sellers are conscious of competing with urea so prefer to try and keep sales going via discount incentives. Demand in Europe is expected to increase slightly as spring is now fully underway and farming activity picks up after the recent Easter holidays. This is not expected to impact prices much but should see product start to move from stores to farms.
Ammonia experienced a large price drop this week as buying interest is very low – the Middle East fob ammonia benchmark saw a decline of more than $130/t this week. This is good news for the South African consumers of ammonia as the import parity price which sets the local price for ammonia will soon reflect this drop. It should ease the production cost of local CAN and also reduce the production cost of MAP.
On the local front, there are a fair number of urea vessels now sailing to South Africa, mostly intended to serve the Cape season that is now underway. Many of these vessels are also calling on Durban to discharge part of their cargoes en route. Durban and Richards Bay ports are experiencing extreme delays on berthing currently, with delays ranging from 5 days to as long as 29 days. This is causing havoc with shipping schedules and adding huge costs in the form of demurrage, with some cargoes apparently facing demurrage bills in excess of $1 million. To put this in context, that adds over R600/t to the cost of urea, assuming a 25,000t cargo.
Phosphates
International phosphate prices start to slide on the lack of demand around the world. Latin American prices are setting the trend for global prices as reports of some Chinese phosphates being sold to Brazil are emerging.
The price reduction this week was very small but gives a clear indication that sellers will have to consider discounts if they want to stimulate sales. The emergence of Chinese phosphate exports has also surprised the market and added to the downward price pressure. No one is expecting the Chinese export volumes to be meaningful in the short term, so the effect on price should not be massive.
The Indian phos acid contract negotiations have still not been concluded for Q2 with the Moroccans, which also creates a lull in trading activity. Indications are that the phos acid price will increase massively, with a figure in excess of $2,000/t being suggested. The delay in the announcement of the Indian Nutrient-based Subsidy scheme is also causing traders looking at the Indian market to hold off on purchases of all phosphates.
While demand for phosphate is soft and is the driver of the easing of prices, the broad expectation for phosphates prices is to remain close to current levels. It will take a large increase in phosphates supply to push prices down.
The local price of phosphates actually went up this week due to the rand devaluing by 5%. When subtracting the value of the nitrogen in MAP from the price, the remaining phosphate unit cost increased by almost 5% week-on-week. 
Potash
Potash seems to be slowly returning to the price stability it normally displays. Buying activity is moderate and supply of potash seems to be less tight than many feared.
Russian supply of potash is now flowing to Brazil, South-east Asia, Europe and even the US. The payment issue to Russian producers has not been fully solved but that appears not to be restricting the trade in Russian product. This has increased supply unexpectedly which has taken a lot of the heat out of global prices.
Given that Q2 is the quietest period of the year for fertilizer demand and potash supply pressures appear to have eased, the expectation is that potash prices should see a period of stability. The two flags to watch are the strength of demand that arises in Q3 versus the volume of potash that Russia is able to export over the coming months.
General Market Outlook
The major macroeconomic event for the week was the rand blowing out from R14.66 to R15.60. This has a large negative impact on local fertilizer prices but does have the benefit of increasing the value of export produce.Energy markets saw a big downward correction this week as the Brent crude oil price dropped from $111/bbl to reach $101/bbl. The Henry Hub gas price in the US declined from $7.3/MMBtu down to $6.9/MMBtu. European gas prices remained stable at the $31/MMBtu level. The drivers of lower energy prices are the Chinese (Shanghai) lockdown due to covid impacting demand for crude oil in China and the USA releasing some of its strategic oil reserves to increase supply.
International maize prices showed further strength over the past week, especially the longer dated contracts for July and December 2022. The devaluing rand helped local white and yellow maize prices gain around 3.5% week-on-week. Local prices are now sitting at around R4350/t
During the week published a more thorough article outlining our views on the impact of the Russian invasion of Ukraine on fertilizer markets. We also touch on some possible scenarios on how the war may evolve and affect fertilizer trade. There is also some commentary on the impact of high fertilizer prices and limited availability on the various regions around the world. The article can be accessed here.Latest Direct Hedge quotes for urea and MAP swaps in USD:
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