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A short reminder for our newer subscribers on the basis of the ‘prices’ stated above – these are not offers to sell but are indicative import parity values of the commodities/nutrients specified. In other words, the full cost of importing said products into South Africa based on this week’s international benchmark price and inclusive of shipping, duties and port costs but excluding any margins. Please contact us if you have any queries regarding this.
Nitrogen
The urea market was very quiet this week as buyers hoped that prices would continue to slide on the back of last week’s Indian tender announcement. Middle East producers were on their Eid holidays so were not very active.
The main point of interest in the urea market for the next week or so is where suppliers participating in the Indian tender pitch their prices. Opinions indicate around $700/t fob Middle East, which is around $25/t down on current pricing. $700/t is a better return than Middle Eastern producers are getting on US and Brazilian sales. The big question after that is how much other buying interest appears – it remains a quiet period of the year for demand and other markets are unlikely to match those prices.
News from the major urea-consuming markets shows that sales are muted – there is some hope that top-dressing demand in the US could stimulate prices but the US imported almost 700,000t of urea in April, which has meant that invenotrie4s are high all over and achieving any price increases will be difficult. South America remains out of the urea market for the most part – some patchy local demand for urea from blenders is being reported but port stocks of imported urea remain adequate.
Ammonium nitrate prices in Europe saw a sharp downward correction this week. As pointed out in last week’s Insights, CAN prices were trading at an unsustainable premium over urea and this week saw CAN drop by 20% in Europe. CAN still remains an expensive option versus urea and production costs in Europe (due to the high gas price there) remain uneconomic, so it is likely that CAN will continue to maintain an above-normal premium over urea for the foreseeable future. Ammonium sulphate continues to hold steady overall, with crystalline product showing a small price increase and granular prices remaining stable.
Ammonia also experienced a quiet week with the spate of holidays around the world. Most major buyers/consumers are well-covered for the short term after the recent buying activity and there is little sign of additional demand emerging. With the US Cornbelt talking of a possible ‘bad season’, direct application of ammonia has been below normal. Ammonium phosphate production economics in India are loss-making at current ammonia price levels, so no additional ammonia demand is appearing there. The outlook for ammonia prices is quite negative because producers are going to come under increasing pressure to shift volumes as their inability to build inventory is generally very limited (by storage capacity).
Trade data for Q1 (January to March inclusive)2022 for South African urea imports shows that just 40,000 t was imported in this period, 75% down on the 160,000t imported in the same period in 2021. The lack of urea availability in the local market is a consequence of this!
Phosphates
The phosphates market was also quiet and prices largely stable this week but there is increasing downwards pressure building. Continuing lack of demand and some flow of Russian phosphates into the market are the reasons behind this.
With US planting now well underway, reports are coming back that phosphate consumption there is about 10% down on prior years. This is a massive reduction considering the size of the North American market and it gives a measure of the impact of high prices of nutrients, especially of phosphates. US farm economics are probably the strongest of all the grain-producing areas worldwide, so if the most profitable producer, and thus the farming sector most able to afford high phosphate prices, is seeing such big demand destruction, then we should expect similar or worse levels of decline in other regions.
In other markets, there was little activity with the Eid holidays shutting everything down in North Africa and the Middle East and Chinese Labour Day holidays quietening down the East Asian markets. With the latest Indian subsidy scheme not offering profits to importers or domestic producers, no buying activity for finish phosphates or the raw materials is emerging from India.
Phosphates prices in Latin America are also reported to be under pressure, with Russian cargoes being sold there. On the other hand, Brazil is due to start buying phosphates for its summer rainfall season in the next month or two, so there will be some rebalancing of the phosphates market in the region over the coming months.
An interesting snippet of trade data that emerged for Q1 2022 is that Foskor exported around 65,000t of phos acid in the quarter, which was 30% up on the same quarter last year. While the local market is anxious about phos acid supply for the upcoming fertilizer season, it is understandable that Foskor would want to earn some hard currency and possibly earn better netback than might have been achievable in the local market. Foskor sold most of this volume to Europe and Bangladesh, where prices have been considerably higher than the Indian contract price, and it is the Indian contract price that sets the local South African phos acid price.
Potash
Potash prices dipped in the US and Brazil this week as the lack of demand takes its toll. With no significant increases in supply in sight, potash prices are not expected to weaken much.
Affordability concerns leading to demand destruction and the arrival of some Russian cargoes were the main events in the Brazilian potash market. The price was assessed as being a few dollars down on last week but no meaningful price reductions are expected currently. The movement in the Brazil price was not sufficient to impact the South African cfr price.
Russian export cargoes continue to flow despite the challenges around making payment for them with Western sanctions cutting off all the regular payment mechanisms. Belarus has not been able to follow the Russian example as they cannot get their potash to a port.
Looking at Q1 trade data for potash into South Africa, there was a doubling of volumes year-on-year from 37,000t in Q1 2021 to 75,000t this year. This is probably in line with price trends where South Africa, in line with Brazil, offered amongst the highest returns to potash suppliers in the early part of the year. So give some context, the US Gulf price of potash is currently more than $300/t cheaper than Brazil/South Africa
General Market Outlook
Strong signals from the EU around a Russian oil embargo pushed crude oil prices up this week, as the rand finally slowed its 6 week decline.
Further strong messages from various EU members around cutting back on Russian oil caused Brent crude to continue its bull-run gaining around 2% this week to touch on $113/bbl. Oil markets have apparently not fully priced in a complete EU embargo on Russian oil, so if the EU is successful in getting its sanctions proposal approved by all 27 members, then further gains in oil can be expected. In a concerning development for US nitrogen producers, the US Henry Hub price is now touching on $9/MMBtu, which is a 14 year high and is up almost 30% this week alone. The reasons for this jump are ascribed to US domestic gas stocks being low and unseasonably warm weather in the south of the US causing increased cooling requirements (i.e. more gas used to produce electricity), which suggests that this should be a short term phenomenon. In Europe gas prices dropped during the week before rebounding back to where they start at $32/MMBtu.
International maize prices shed around 1.5% on the CME this week as high prices appear to have stimulated some profit-taking. A slightly stronger rand this week caused the Safex prices for maize to drop around 2% as the combination of the lower dollar price and stronger rand flowed through. Sunflower and Soya followed suit on the Safex with prices declining nominally this week – it should be noted that prices for grains and oilseeds remained at very high levels by historical standards.
Latest Direct Hedge quotes for urea and MAP swaps in USD:
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