Nitrogen
Urea prices fall off a cliff this week as weak demand forces producers into heavy discounting
Ongoing low sales volumes versus expectations have pressured Urea producers into chasing sales hard ahead of December as their stock levels rise. With the market already balanced on a knife-edge, this sent prices tumbling as regions reported between $20 and $50/t reductions. China saw the smallest decline at around $20/t, which was largely immaterial because Chinese export volumes are being heavily restricted by the government any way and no new urea exports are expected for the rest of this year.
Egypt started the discounting stampede by dropping its price each day this week, with prices moving from just below $400 a week ago to end the week at $350/t. Egypt picked up a lot of sales and it is likely that Egypt has sold most of its available for volumes for the short term.
The market is looking at the US winter fill programme to provide big purchases but with ample availability in the market and a lot of the American requirements being met under contracts, there was not much new US spot buying. Likewise Brazil is being targeted by producers but it has decent local stocks already and the demand outlook, as we described in detail last week, is looking very poor for the short term with hot, dry weather hurting agricultural prospects.
This has left the Middle East producers in a difficult place. The sanctioned urea producers are used to discounting and have moved quickly to capture sales where they can. The Middle East players are looking around for buyers and having to consider very low offers. As it is, the Middle East price fell almost $50/t to approach $320/t FOB and there was talk that a trader even bid as low as $305/t for a cargo. Iranian product reportedly sold into Brazil at $300/t CFR, which nets back to an Iranian FOB price of $270-280/t.
One of the knee-jerk responses to tumbling prices was the cancellation of a number of urea tenders across Asia. Pakistan, Bangladesh and Sri Lanka all had tenders in play but quickly moved to cancel or simply not award any volumes. This new price level should prompt a decent amount of new business and may encourage the next Indian tender to be brought forward as the Indians will not wish to miss out on low pricing.
While these Asian tenders will be re-issued in the coming weeks, the reality is that these volumes have already been accounted for in the market. The overall supply-demand balance is still tilted heavily towards oversupply and expectations are for further price falls, as unbelievable as this may seem.
The Rand weakened sharply midweek to devalue from R18.25 to R18.90 to the Dollar (3%) which affected our import parity calculation. In dollar terms urea fell nearly 13% week on week and our local costing dropped by more than 9% after the Rand decline is factored in. Any late season urea speculators may have an opportunity to bring in a cargo if they are brave enough to gamble on the enormous shipping delay in Durban easing in the next month.
Ammonium sulphate prices fell by $10/t for all grades again this week. Obviously developments in urea are dragging all nitrogen values sharply down and with urea exports being throttled from China, a lot of traders are focusing on Chinese amsul exports. European demand for nitrogen is way down and Brazil has decent volumes of amsul either in country or enroute, which is leaving Asian markets as the only big outlet for amsul right now. Indonesia has bought reasonable volumes but El Nino is impacting demand in South East Asia. Like the rest of the nitrogen stable, amsul remains under serious price pressure and lower numbers look probable in the coming weeks.
Wet conditions throughout Europe are negatively impacting both planting and harvest forecasts for winter and spring plantings in Europe. This in turn is hurting Ammonium nitrate demand by now and for spring with Europe being by far the biggest target market for AN and CAN at this time of year. There is increasing evidence that a lot of the switching that took place last season with urea displacing CAN in Europe may be permanent – urea is once again substantially cheaper than CAN and traditional CAN users seems to be buying more urea again this season.
Ammonia prices were mostly stable this week but that was down to limited trade, and all players are talking of a large downward move likely to happen any day now. With ammonia close to double the price of urea, the production economics are badly out of kilter and a correction will not be far away. There has been a lot of ammonia trade in recent weeks and the ammonia shipping fleet is busy with deliveries over the coming weeks but once the next round of business gets underway, the ammonia price is expected to fall significantly.
Phosphates
Tough negotiations between DAP suppliers and Indian buyers will be key in determining price direction in coming weeks
With DAP prices sitting steady at $600/t and Indian imports only breaking even at $500/t there has been an impasse between major phosphate traders and the big Indian customers. Most predictions suggested that the price would have to fall because traders would not be able to find sufficient alternative sales but it now appears that the Indian buyers are going to resume purchases at present price levels and make a loss. The logic of such a decision isn’t clear but we speculate that the Indians are concerned that Chinese export restrictions may limit phosphate availability and local Indian stock levels are too low to take any chances. India’s DAP imports for October were 65% lower than October last year, showing the impact of the reduction in phosphate subsidy.
Market sentiment around phosphates has clearly shifted – where opinions suggested further price declines were likely, now the consensus is that prices will be stable and possible rising in the coming 3-4 months.
MAP prices enjoyed the support of Brazilian buying, which lifted the lower end of the price range up by $5/t and boosting the average price by $2.5/t to $563/t. MAP prices have now narrowed the gap to DAP to around $35/t now, whereas the delta was $100/t a month or 2 back. The movement in the Brazil MAP price lifted the Saudi Arabia price up by a similar amount this week.
Potash
Negative weather events in Brazil and Europe leads to potash prices falling in those regions
Europe’s excessive rainfall and resultant flooding is causing farmers to cut back on fertilizer inputs and potash is usually the nutrient to be sacrificed first. In Brazil weather to the other extreme, too hot and dry, is leading farmer to cut back on inputs. Potash prices have thus eased down by a few dollars in most benchmark locations this week.
The Brazilian price fell another $5/t as the price now approaches $330/t with buyers not really interested as the macro view of the current planting is more pessimistic every day and Brazilian distributors not keen to overcommit on volumes. It is a similar story in Europe where domestic stocks are adequate and with the crop outlook being poor, none of the buyers are too active.
The South African potash price was unchanged this week with the weaker Rand pushing the import parity cost towards R8,000/t ex-warehouse.
General Market Outlook
Crude oil price strengthens as OPEC looks to intervene
Brent Crude oil prices firmed this week as an OPEC meeting was scheduled that was expected to suggest cutting back of supply. This supported oil prices rising from $79/bbl to above $82/bbl this week – until the meeting was delayed and oil prices quickly fell towards $80/bbl once more. The European TTF Gas prices eased down over the past week to approach $14/MMBtu, which is a move in the right direction for EU gas users but not significant enough to really improve production economics much. US natural gas prices were stable at just under $3.0/MMBtu for the week.
With the USA shutting down for its Thanksgiving holiday this week, international grain markets were quiet with minimal price movements. Locally on the SAFEX, the only real mover was maize, which gained over 3.5% week on week – probably linked to the weaker Rand.
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