Nitrogen
Urea prices keep spiking up as traders cover positions – how long will these higher prices be sustained?
Regular service has resumed in Urea markets where sentiment overwhelms fundamentals – prices rose strongly this week following on from the price run started in Egypt last week. None of the benchmark prices have come close to the $375/t FOB achieved in Egypt last week but most locations saw prices run up $20-30/t to hit the $350/t level. Sanctioned product from Russia and Iran remains around $30/t cheaper.
It seems that much of the price rise has been driven by traders rushing in to secure stock as many had opted to go short after the recent decline in prices. There is not much evidence of buyers/end-users showing real buying interest at the latest levels, so these traders are betting on prices remaining close to present levels for the coming month or two. Of course if prices keep moving up, then traders will netting nice margins. No doubt they will do their best to motivate for even higher prices.
Trading volumes have been quite thin, which also casts some doubt on the strength of this price surge. Sales into the Indian tender plus the latest trader purchases have bought up most of the current urea inventory but how will the inventory picture look in a month’s time? Unless widespread buying takes place, it is probable that the major producers will be urgently looking for sales by the end of February. Surging prices tend to either spark a proper price run or really hurt end-user demand – our reading of present demand suggests a major price run would be unlikely, and if high prices discourage consumption, then a rapid reversal in urea prices cannot be discounted. The higher and faster urea prices, the greater the likelihood becomes of an equal and opposite collapse in prices during Q2.
Europe was one of the few regional markets to report an actual increase in demand for urea. Many importers have left their buying quite late for the spring season and have been acting to source product.
Most other markets across Asia and South America reported strong buyer resistance to this week’s higher prices.
Ammonium sulphate prices rose once more this week, being the 3rd week of $5/t increases. Domestic Chinese demand and the upwards move in urea values is the reason for amsul’s rise. With prices of below $200/t for both granular and crystalline grades, prices remain quite low by recent historical standards.
Ammonium nitrate prices were flat this week but improving weather in Europe is at least giving distributors some cause for optimism and expectations are that AN and CAN demand should improve in the coming weeks. Higher urea prices may support higher nitrate prices but urea is still way cheaper on a nitrogen basis, so the upside for AN and CAN prices is likely quite small.
Ammonia prices remain under pressure with Asian benchmark prices falling again this week to approach $400/t. Prices in the Western Hemisphere remain about $100/t higher but prices are being pushed down as demand is rather weak.
Phosphates
Mixed signals in Phosphate markets keeps prices unchanged
The Indian subsidy issue and the infeasibility of Indian phosphate imports continues to dog phosphate markets in general. Some moderate Indian imports, mostly under contract, have occurred but the players involved are making losses. Some weeks back, expectations of an increased government subsidy gave support to phosphate prices. Now the mood is more pessimistic that the Indian subsidy will be raised, in which case phosphate prices will be pressured downwards.
MAP prices are under pressure thanks to declining Brazilian soya economics. Even though Brazilian MAP is a good $40/t cheaper than DAP prices around the world, there is growing belief that MAP prices will fall, at least in Brazil.
OCP from Morocco reported some solid sales volumes this week, with mostly DAP being sold to Europe and India. China remains absent from the global phosphates but is expected to return in Q2 – unless demand strengthens substantially in the next few months, phosphates prices will probably fall when the Chinese volumes return.
An Egyptian cargo of phosphate rock en route to India was struck by a Yemeni Houthi drone this week. The Houthi attacks on shipping in the Red Sea are pushing freight rates through the region up and in some cases insurers are refusing to insure cargoes on voyages through that area.
Potash
Continuing oversupply of Potash causes prices to slide downwards
Surpluses of potash supply versus limited demand led to price reductions in Brazil, USA and South East Asia this week. Brazil saw its price drop well below $300/t, hitting an almost 3 year low. As mentioned earlier, it is deteriorating soya economics that are really hurting fertilizer demand in Brazil.
The impact of El Nino on South East Asian agriculture has been well discussed but the targeting of sales of sanctioned Belarussian product in the region has sent potash prices tumbling, with prices at the low end of the range now touching on $300/t CFR.
A number of European and FSU potash producers are hoping that European demand sparks to life and takes up some potash volumes. Improving weather in the region is further raising hopes but the European price of close to €400/t CIF will need to drop in line with other major markets before farmers are likely to bite.
While it’s early to be looking at the Indian annual potash contract price, indications are that the Indians will be targeting a price of around $300/t, which is $20/t below the 2023 value. The outlook for potash prices is rather gloomy for the next 6 months as things stand.
General Market Outlook
Crude Oil prices holding steady just below $80/bbl but weaker Rand not enough to arrest falling crop values
Brent Crude oil remains somewhat elevated by recent standards around $79/bbl. The threat to Red Sea shipping traffic is a major risk factor for oil markets and is supporting oil prices, despite demand being weak. The gas supply situation in Europe continues to improve and the TTF Gas price is moving downwards strongly - now below $9/MMBtu. American natural gas prices have also fallen significantly from $3.2/MMBtu to $2.6/MMBtu in the past week. Despite extremely cold weather in the US, which would normally send gas prices higher.
The Rand devalued by almost 2% against the US Dollar this week and is trading above R19:$ today. Ongoing tensions in the Middle East are blamed for the swing towards safe haven currencies such as the Dollar and most emerging market currencies have weakened this week.
The basket of cereals and oilseeds took a hiding on local and international markets again this past week. On the international exchanges, maize and wheat dropped 3% and soya lost 1.4% week-on-week. On the local Safex exchange, the losses were smaller at around 1% down, perhaps helped by the weaker Rand. The CME maize price is now at a 3 year low after the US reported a record maize crop for 2023. World maize stocks are at their highest level in 6 years. These factors suggest a gloomy outlook for maize prices for our upcoming harvest.
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