Nitrogen
Urea prices were mostly flat this week with the market expectation of more lower prices to come
The final volumes in the Indian urea tender were confirmed at 1.67 million tons but this volume being removed from the market has done little to support prices. Even with China unlikely to supply more than a handful of cargoes, suppliers out the Middle East, Russia and even South East Asia all have ample product available to meet the tender requirements and still have availability for spot buyers.
In a quiet news week, the biggest news was probably the Egyptian producers being forced to stop urea production due to gas shortages in the country. The outages are not expected to be long-lasting and most plants are expected to be up and running by this weekend. Normally at this time of year, such a disruption would usually prompt a knee-jerk reaction of buying, particularly from European players. It is a sign of how comfortable most traders and buyers are with the present supply-demand balance that there was no market reaction at all.
Brazil has ample urea booked and en route for November and received more than 1 million tons during October. Brazilian nitrogen demand remains on the weaker side with international crop prices remaining soft.
The Middle East urea price remained in the mid-$380s this week, or around $410/t CFR Durban. Iranian urea is trading at a good $35/t cheaper and cargoes from Iran to Durban keep flowing and one Iranian cargo went to Beira last month too.
Urea prices appear set to hover just below $400/t for a few weeks at least. This is unusual considering that normally this would be the high demand period for the Northern Hemisphere winter stocking programme. A lot of urea is being traded under contract but the spikes in demand that are normally evident at this time of year, which keep prices moving up, seem to be absent. A pessimistic view on crop prices is clearly not helping the demand side. The supply side is likely to start coming under some cost pressure (i.e. a margin squeeze for some producers) as energy prices keep climbing and capacity utilization being lower than usual for this time of year could force some producers to consider idling plants if they cannot achieve higher prices.
Ammonium sulphate prices were cut by at least $10/t across both grades this week as the market accepts that nitrogen prices seem set to decline further. Chinese producers have large stock positions and are chasing customers. The South East Asian markets, who would normally be big buyers at this time of year, are dealing with weak exchange rates plus concerns of El Nino. Market consensus is that amsul has further decreases to come in the next week or two.
Ammonium nitrate is suffering from the wider nitrogen outlook. Russian AN exporters are facing large stock build ups in the ports and are therefore looking to shift stock. European retailers apparently have a fair amount of carryover AN and CAN, thus they are indicating zero interest in stocking up at present. Brazil has plenty of amsul already booked for November and domestic demand is weak in the face of poor crop prices.
Ammonia prices stabilized this week as strong ammonia demand has been balanced with increased supply. The general pessimism in downstream nitrogen prices has also caused ammonia buyers to be cautious, limiting any price increases this week.
Phosphates
Phosphate supply is a little tight, which is giving prices some support
Certain regional markets showed small increases in phosphate prices this week, caused by buyers needing prompt cargoes and availability said to be limited. Countering this is the Indian situation where the reduced subsidy is going to force DAP prices down (or traded volumes will dry up). There is nowhere near enough phosphate demand from other regions to compensate for lower Indian buying. Therefore lower prices in the coming months appear inevitable.
Phosphate producers are pushing a narrative of limited product availability based on restricted Chinese exports, Russian capacity being down for maintenance and the Moroccans being busy with deliveries to Ethiopia under tender. The fact of the matter is that there is a vast amount of under-utilized capacity and producers are playing a dangerous game of trying to throttle supply to push prices up. Buyers have demonstrated enormous price sensitivity and jumps in prices run the risk of causing demand destruction. Each producer has a different breakeven cost but given the delicate state of demand, it would make better business sense to maintain sales volumes and not get too greedy on price.
MAP prices appear to have some strength with prices continuing to edge upwards – the Saudi FOB price rose by $5/t at the upper end of the range. As we’ve been indicating for a while, MAP and DAP prices logically need to converge. Our view is that we may some instability in phosphate prices for the next month or two as a new equilibrium is found.
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Potash
Potash prices mostly unchanged this week
Most potash business is being conducted under contract and whatever little spot activity is being priced in line with existing prices.
The most interesting news this week was the announcement of BHP to double its Canadian potash mine from just over 4 million t/y to 8.5 million t/y. The total capital cost of the expanded operation will come to over $15 billion. The 1st phase of the project will not begin commercial production until 2026 and the 2nd phase not until 2029 – BHP is boldly rolling the dice on long term returns on potash!
Considering the structural oversupply already present in the potash sector with a number of mega-projects still scaling up and not achieving close to full capacity because the demand simply does not exist, it would appear that potash prices are destined to hover at close to marginal cost for the next decade. Unless substantial capacity is lost, whether due to being unviable (high cost) or sanctioned (Russia and Belarus, which has showed no evidence of actually limiting supply) the potash supply-demand balance looks to be heavily leaning towards oversupply.
The outlook for potash remains the same – prices likely to be mostly stable with the occasional small reduction.
General Market Outlook
Stronger Rand helps local commodity costs
Energy markets have taken the view that for now, the Israel-Gaza conflict has been contained and thus Brent crude oil prices fell steadily through the week. Oil prices declined from $89/bbl to trade at $86/bbl as weak oil demand is evident in the US, China and much of Western Europe. Gas prices were flat with the European TTF price gas price dropping $1/MMBtu to $15/MMBtu. In the US, month end futures closeouts and cold weather increasing demand pushed natural gas prices up again this week to $3.6/MMBtu.
A weaker US Dollar was good news for many emerging currencies including the Rand, which strengthened by almost 3% this week. With fertilizer prices remaining largely unchanged, the improved Rand helped reduced local import parity costs by almost the full 3%.
Crop prices continue to suffer both internationally and locally, and the stronger Rand is only offering modest relief to the ongoing decline in CME values for maize and wheat, with soya the only crop managing to hold its price.
Latest Direct Hedge quotes for urea and MAP Swaps in USD:
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