Nitrogen
Brazil leads the Urea market downwards as prices fall across all regions
The urea market has been jittery for weeks and this week it was the producers/sellers who blinked first. With Northern Hemisphere buying being moderate at best and most of it being done under contract, Brazil has been the main target for spot sales. After being quiet for a few weeks while the Indian tender was running, the Brazilians returned to the market quite strongly this week. They were able to leverage their buying power and get prices retreating as sellers queued up. Prices quickly dropped from last week’s high of $400/t CFR down to $360/t and it is not clear that this is the bottom.
With the average Brazil price dropping around $25/t, other benchmark prices were pressured downwards too. The Middle East price retracted by almost $20/t, moving down into the mid-$360s/t FOB. The Middle Eastern producers do have some outlets with Pakistan coming into the market for 200,000t shortly and the Indian tender volumes need to be delivered. But until North Hemisphere buying really kicks in, the Middle Eastern producers are going to need to find buyers.
One more Indian tender is expected before the end of the year but there are major Indian holidays to take place first, so any tender will likely only happen around mid-December. Indian domestic urea stocks are looking healthy, therefore the next tender is not expected to seek massive volumes – talk is that 600,000-800,000t may be the number.
The Chinese government announced some cutting back of urea export volumes and export inspections are taking up to 60 days, which slows down the rate of exports. In theory this should tighten the market and support urea prices, however the market is evidently so long right now that this Chinese constraint isn’t impacting prices at all.
The North African producers are all running but are seeing pries slip as European buying remains below average for this time of year. With prices slipping everywhere else, the North Africans are happy to offer the odd $5-10/t discount and keep some flow of sales to Europe and Turkey going.
There is urea available in Durban, and a lot of urea plus other products stuck on vessels outside Durban. With the wet weather now here and a lot of ridiculously late imports, there is an enormous backlog of vessels waiting to berth. Currently the waiting period is at least 15 days, which translates to more than $500,000 of demurrage per vessel (or $20/t additional cost for the product). The wait in Beira is even worse and demurrage charges of >$1.5 million per vessel are being mentioned. Those farmers that bought fertilizer early and took delivery are well-set for the season.
Ammonium sulphate prices took a big hit this week as urea dragged nitrogen values down. Prices out of China dropped 7-10% depending on grade. Some traders are sitting on amsul positions on vessels awaiting berthing in Brazil and they have discounted aggressively this week to liquidate those positions – strong indications that they expect further price weakness. There were a few small tenders across South East Asia and South America this week but the combined volumes were not enough to tighten the current oversupply.
Ammonium nitrate prices remain under pressure, although there were no meaningful price movements this week. European grain economics are looking very poor with the high cost of production even with the large EU agricultural subsidy leading to a gloomy outlook for the next spring planting and therefore lowered fertilizer forecasts. East European distributors are stocking up on AN now, which is taking up most of the surplus Russian product. This is what has kept prices stable this week but unless nitrogen demand in general firms in the next month, the expectation is that AN values will keep sliding downwards.
The Ammonia market was uneventful this week, with minimal spot trading and prices remaining unchanged around the $600/t level, depending on region. The ammonia market is balancing out a number of opposing factors – US demand is fairly strong at present and some capacity between Trinidad and the US is down, Europe still has fairly high gas prices meaning that ammonia imports instead of production are a constant consideration. Countering these factors is declining demand in Asia as India faces lower DAP production because of reduced subsidies and Far East industrial demand for ammonia also falling. Trade data for ammonia imports into South Africa for January to September painted a really gloomy picture; imports for the 1st 9 months were less than 70kt, 40% down on last year, which itself was down on the long term average. This means that both Foskor and Omnia are taking less ammonia – this explains the huge shortage of MAP experienced in the local market. Omnia production volumes are also likely significantly down on its long term average, both for fertilizer and explosives.
Phosphates
Chinese government announces moves to tighten Phosphate exports – market waiting to see if this will lift prices
Phosphate markets have been trying to find direction amidst conflicting market drivers in recent weeks. The hefty reduction in the Indian phosphate subsidy will require at least $100/t reduction in the DAP price for any meaningful Indian import volumes to take place - and the phosphate producers need those Indian volumes with global phosphate consumption generally quite weak. Chinese export volumes have been lower than normal but this latest move by the government will support a narrative of price support. Whether or not this tightens the market is questionable – but fertilizer markets have never relied on facts when it comes to sentimental price moves!
While DAP remains under price pressure or at best remains neutral, the situation for MAP is quite different. The MAP market remains tight and demand is looking decent, without shooting the lights out. The Brazilian market has seen an up-tick in MAP buying such that prices there have lifted $20/t to $560/t CFR in recent weeks. Brazil’s MAP sourcing for the current summer planting season is considered to be >90% complete, indicating that the demand won’t remain strong for long. With maize prices at current levels, the Brazilian Safrinha season in autumn is unlikely to justify substantial inputs of phosphates (Safrinha plantings are usually intended to consume residual nutrients applied for the summer rainfall season).
The Southern African market has struggled to procure and supply ample MAP as the season is in full swing – Foskor continues to underperform and in fact is now importing itself to try and hold onto some market share. This is about as inefficient a supply scenario as could be conceived – Foskor has very limited experience or competence in cost-effective sourcing of MAP and will add its overheads and inefficiencies to the product cost. Loading product from Foskor’s site is also a major bottleneck, not only time-consuming but the long turnaround time is causing many transporters to refuse to load there, pushing up transport rates.
The USA has cut its import duties on Moroccan phosphates massively, which will attract a lot of Moroccan product – good news for the Moroccans but this will lower the domestic US phosphate price. The US majors such as Nutrient and Mosaic will not be happy, and some lawsuits may result.
Latest SA import data shows that MAP imports for January-September are more than 40% down at 107kt versus 184kt in the same period last year. Add Foskor’s lack of production and the root causes of the MAP crisis are clear, although it’s rather late to remedy it at this point.
Potash
Potash prices remain stable again this week but look to be under downward pressure
The potash market remains quiet with most of the bigger Northern Hemisphere markets active with their winter procurement being conducted under contract in most cases. Brazil remains the biggest discussion point for potash. Brazilian imports have reached all-time records for this year so far, however there is rising evidence that physical consumption of potash in Brazil is not keeping pace, meaning that domestic Brazilian potash stocks are rising. This is not good news for traders looking to place potash cargoes into Brazil.
The much lower potash prices are predictably impacting on the financial performance of the potash majors, with most of them announcing much lower revenues for both Q3 and for the year to date.
Some ‘trapped’ Russian potash in Europe has been donated to the World Food Programme and is being shipped to Beira, along with some NPK. The combined volume is around 25,000t.
Trade statistics show that potash imports into South Africa picked up hugely in September and total potash imports for the January – September period have caught up to historical levels; 235kt having been imported so far this year compared to 240kt in the same period last year.
General Market Outlook
Crude oil prices fall and approach $80/bbl as demand weakens
Brent Crude prices fell steadily this week as oil demand keeps shrinking amidst various economic headwinds. The oil price fell from $86/bbl a week ago to $80/bbl presently as supply from the Arab Gulf and Russia is at recent highs and demand from China has been declining. Gas prices remain elevated in Europe as the TTF price gas price hovers between $14-15/MMBtu with winter setting in and increasing gas demand. American natural gas prices stabilized and eased down to $3.1/MMBtu.
The Rand managed to find some relative stability in the high R18s versus the Dollar. The medium term budget speech with its usual bunch of empty hints and promises seems to have encouraged support for the Rand. The broader outlook seems to be the Rand to approach R20 in the first half of next year – if accurate, this would be helpful for growers with crop values likely to reflect high numbers.
The outlook for grains remains pessimistic. Safex values for maize came off about 1% this week, sitting at just below R3900/t for white maize and under R3700/t for yellow. Sunflower also fell slightly, to trade just above R9000/t. Soya continues to perform best trading at R9300/t and also gaining 2% internationally on the CME.
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