Nitrogen
Lower than expected volumes booked on Indian Urea tender send prices plummeting worldwide
The Indians shocked the urea market by only booking 340,000t out of the 725,000t that was offered under the tender. The Indians have the luxury of ample urea stocks in-country and took the view that the lowest price offered under the tender was higher than they were targeting. Needless to add, this move sent urea prices tumbling across all benchmarks.
The American market was the most volatile with prices dropping as low as $310/t - $140/t down on prices achieved there just 4 weeks ago ($450.t). The fact that traders and producers have sold almost 1 million tons of urea to the US for April during that price bonanza has exacerbated the situation now. There is a lot of urea available in the US market and sellers are discounting aggressively to generate sales.
The Middle East urea benchmark dropped $25/t as it approaches the $300/t FOB threshold. . The challenge for the Middle Eastern producers is finding a home for their tons – the Indian tender will barely make a dent in current inventories and with the US appetite for spot cargoes being close to zero and Europe being covered by Egypt, the Middle East has to look for Southern Hemisphere customers.
Egypt did not offer any volumes on the Indian tender and lowered its price down to the $320/t FOB level but had no takers. Interestingly traders targeting the European market (which is the usual home for Egyptian urea exports) have been short-selling in anticipation of lower prices. The selling prices they’ve been trading at netback to Egyptian prices below $300/t FOB. This suggests strongly that prices still have some way to fall (or a few traders may be taking a beating).
Brazil saw prices take a nose-dive too with product trading at $305, down from $330/t last week, and prices quickly declining further from there. Eventually a floor was found with a sale of Iranian product at $270/t CFR Brazil. A good $60/t down on last week.
Iran also has high urea inventories that it is looking to sell. The Iranians usually have the lowest priced urea therefore they have been cautious about discounting too aggressively in the current market. This approach may have back-fired on them because the free-falling price and their need to sell means they are having to discount heavily to attract sales now. The Iranian price fell from just below $300/t FOB last week to below $250/t this week. Iran generally trades at a $25-30/t discount to the Middle East price, so the Iranian price gives a reference as to where the Middle East price may bottom out in the coming weeks.
Just when the market did not need any more depressing news, news has come out of China that urea exports will now start in 10 days’ time (basically the export license approval by the Chinese government is the mechanism they use to control the physical shipment of urea) with exporters expecting a 5-10 approval period for export permits. Thus Chinese exports may commence in 2 weeks’ time, when the market is under huge pressure from oversupply.
Lower urea prices in the coming weeks appear inevitable – the Rand has also held steady at R18.7 to the Dollar, yielding an import parity cost of around R6,800/t ex-warehouse in Durban. We saw urea bottom out at $265/t (Middle East) in June last year, so this probably gives a decent reference point for where urea might be going now. With the Middle East price touching $300 already and the market looking like it’s under downward pressure for the next few weeks at least, we predict that prices will drop into the high-$200s. Anything in the $270-280 range is likely to represent a good buying opportunity. While urea prices are notoriously fickle and hard to predict, current prices are well below their equilibrium level given market fundamentals – in other words, the price is unlikely to remain low for very long.
Ammonium sulphate prices were stable this week despite the turmoil seen in the urea sector. But with nitrogen values falling as a result of the collapse in urea prices, amsul prices are likely to follow. A number of amsul producers are down for maintenance, having taken the opportunity to stop production when prices were already low, so this may reduce the decline in amsul prices to some extent.
Ammonium nitrate markets were quiet too, as the European season winds down and demand is low. year. CAN prices slide down a few dollars this week as European traders chase whatever business they can find. With urea in freefall, AN/CAN buyers are going to hold back on buying and let urea pressure nitrate prices downwards.
Ammonia was also quiet this week with all the major price benchmarks unchanged. The market remains split along east-west lines, with the Asian (East) market trading around the $300/t level and prices in the West more in the $450-475/t range.
Phosphates
Another week of lower DAP prices as Chinese exports boost supply
DAP prices declined again this week and the rate of decline has been sharp enough that Chinese producers are now talking about trying to set a floor price for export DAP. Traders continue to short-sell DAP into India banking on lower DAP prices being available. The Chinese DAP price dropped from $560 to 540/t this week and the Chinese producers are trying to create a minimum price of $530/t FOB China. Given that the global supply-demand balance for phosphates is firmly tilted towards oversupply, it is difficult to see how the Chinese can arrest the price slide other than by cutting back sales/export volumes massively – which is very unlikely at this stage.
The US market saw the biggest adjustment of all, dropping by $45/t to move into the $580/t range. The US price, as with Europe, was way above most other markets, thus the move can be seen as the American market moving into alignment with global prices.
MAP prices remain stuck in stone with no change despite DAP prices heading down. Lack of liquidity in MAP is the primary driver for the price holding steady at around $530/t FOB Saudi and $570/t CFR Brazil. There is some talk that some MAP deals were done at higher prices this week, although these weren’t confirmed. More tellingly on the forward market, the MAP Brazil Swaps quotes, which had also been unchanged for many weeks, showed a decent drop this week – the ‘Ask’ or selling price dropped by $15-20/t implying that sellers are starting to chase business. Our view is that MAP prices cannot resist the momentum being created by DAP and prices will start to move down in the coming month or two.
Looking at phosphate major, OCP in Morocco, which has a nominal monthly production capacity of more than 1 million tons of various phosphates – OCP’s sales lineup for April is only around 130,000t and half of that are domestic sales. This gives an indication of the low sales volumes, no doubt to try and support prices. Further evidence of poor demand comes from Brazil’s import data which shows that Brazilian MAP imports for Q1 this year are more than 40% lower than Q1 2023.
Potash
Potash markets mostly unchanged as prices move a few Dollars either way in various regions
Brazil experienced a small increase in its Potash price as soya demand is said to be driving sales. Soya economics remain unattractive in Brazil, so a sustained recovery in potash prices is unlikely and traders run the risk of Brazil customers cutting back on volumes if they get too ambitious with prices.
South East Asia and Europe saw potash prices moving slightly down this week. SE Asian trade was fairly quiet this week due to Ramadan holidays and a few small tender awards are what pushed prices down. On the other hand Europe continues to be the highest priced location for potash and with spring buying largely complete, potash sellers are trying to incentivize some buying.
Overall no fireworks should be expected from potash prices – we are likely to see small adjustments of $5/t up or down as traders work hard to drum up business in various locations. The Indian contract price is the next major event that will test prices – but no major shocks are expected from this negotiation either.
General Market Outlook
Further escalation of tensions between Iran and Israel lifts crude oil prices
Another week of political drama in the Middle East lifted Brent Crude oil prices even further. Israel is anticipating a missile and drone attack imminently and this has pushed crude oil to $92/bbl. This is a major flag as Israel is likely to retaliate militarily if Iran proceeds with its strike and this would almost certainly lead to oil prices running higher due to the heightened risk of disruption to global oil supplies. Natural gas prices have also reacted to these concerns and the European TTF gas price has jumped sharply from $8/MMBtu to over $9.2/MMBtu. The American natural gas market is a bit more isolated and prices there remain steady at $1.8/MMBtu.
International grain prices were mostly down this week, falling 1.5-2%. The relative stability of the Rand against the Dollar and the lag effect of the Safex market saw local Safex prices rising, other than for wheat. Local maize prices remain at annual highs, which should boost farm incomes as the harvest approaches.
Latest Direct Hedge quotes for Urea and MAP Swaps in USD:
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