Nitrogen
Urea prices trend down this week as Indian tender applies pressure on the market
The Indian urea tender closed yesterday (Thursday) so we will see what the offer prices look like by early next week. Even with a number of potential suppliers electing not to participate, it appears that the Indians are going to get some low numbers. Already this week, the Middle East urea price slid $10/t into the low $320s as sellers are struggling to drum up business. Early indications are that the low offer in the tender may be in the $330s, which would knock another $5-10/t off the Middle East price if correct.
The Chinese remain absent from the international market, opting to focus on domestic deliveries, and the North African producers are holding back in the hope of supplying Europe and North America when those buyers commence their Q4 sourcing programmes. This leaves the Middle East and the Russians as the main participants in the Indian tender. Volume expectations are for between 500-800,000t being fixed by the Indians, and this could go as high as a million tons should the offers allow. Indian domestic consumption of urea has been high in the past month as monsoon rains have been above average and farming conditions are very positive.
Prices in Egypt eased down this week too as European buying is slow – buyers everywhere are waiting on the Indian tender to see if some bargain prices result. There is broad consensus that urea prices are likely to bottom out in the next week or two, and thereafter prices should firm for the remainder of the year.
Demand in Brazil remains weak, despite it being peak sourcing season. Prices have dropped by a few dollars and buying in general remains slower than usual for this time of year. The conclusion of the Indian tender may be the catalyst for increased Brazilian buying once a price target has been created.
There have been rumours circulating that the Chinese may not export for the remainder of this year. If that proves to be the case, then that will support a stronger recovery (rise) in urea prices. At this point, the Chinese are building domestic inventories but they should still have surplus volumes available for export once the rebuild is complete.
Iran has some urea volumes to sell on tender but they are reluctant to chase prices down, so minimum prices of just under $300/t have been set. If the Middle East price is going to drop below $320/t, then the usual Iranian discount would translate to an Iranian price of closer to $290/t – implying that the Iranians may struggle to find offtakers unless they’re prepared to consider lower numbers.
We expect urea prices to drop another $5-10/t over the next week and that is likely to be the floor price for the remainder of the year. As demand ramps up over the coming quarter, prices should rise steadily.
Ammonium sulphate markets were paused as the outcome of the Indian urea tender is awaited. Amsul prices have been reasonably firm in recent weeks but a drop in urea prices will probably lead to a reduction in amsul for a few weeks. Over the next 3-4 months, demand will ramp up strongly and support higher prices.
Ammonium Nitrate is seeing a similar scenario, with buyers reluctant to pull the trigger in case the Indian tender pushes nitrogen values lower. The primary nitrate markets of Brazil and Europe are not seeing much demand at present, so nitrate prices are struggling to find much support in the short term. Higher nitrogen values in Q4 should lift nitrate prices later in the year.
Ammonia prices in the West saw the Tampa contract price raised by $55/t to $530, indicating the tightness of the Western Hemisphere for ammonia. How long the ammonia market can remain at almost double the price of urea is a question. The Eastern Hemisphere ammonia market remains flat as supply is generally available and demand is mediocre at best.
Phosphates
India remains hungry for more phosphates, as market is showing signs of running out of momentum
Phosphates prices were largely unchanged this week as Indian authorities are encouraging importers to keep sourcing phosphates because Indian consumption is strong and domestic stock levels are being depleted. The Indians are engaging directly with Chinese phosphates producers to try and secure some large volumes – as always, the key issue is that of price, with the Indians having limited to scope to pay much higher numbers without entering into loss-making territory once the Indian subsidy and retail price is factored in.
Some large phosphate tenders for Ethiopia and Bangladesh are adding to demand but there is rising resistance to phosphate prices in light of general farm profitability at current crop prices. Nitrogen and potash prices are half the level of phosphates, which is leading to phosphate demand destruction where farmers have to choose where they cut input costs.
MAP prices were unchanged this week as lack of liquidity is limiting trade. Contract volumes continue to flow towards Brazil but the same old story of unattractive farm economics are limiting interest in additional spot cargoes. DAP is increasingly being substituted in for MAP, given availability and price advantage at present.
For now, the overall picture for phosphates shows some supply tightness being roughly balanced by weakening demand. In local news, Foskor somewhat surprisingly cut its September MAP price to just over R12,000/t – this is presumably in response to the Rand strengthening over the past month. The Foskor price is well below replacement cost via imports, suggesting a tactic of trying to discourage (or out-compete) imported MAP ahead of the season.
Potash
Potash prices flat this week with the outlook remaining weak
There are a few potash tenders in regions like South East Asia but no real price movements are foreseen. The major potash exporters are still busy concluding the shipping details on their volumes to India under the annual Indian potash contract concluded a month or so back.
The Canadian rail strike threat has been resolved, ending whatever upward support to prices this might have represented.
Producer talk this week is pushing the view that potash prices will bottom out in September and firm for Q4. Whether this means that prices will go lower before they rise is unclear. Likewise, prices firming during Q4 does not necessarily mean a significant increase in prices (which would not be supported by market fundamentals in any case). Our view is that potash looks to be stuck in the low $300s for the coming month or two at least.
General Market Outlook
Slight strengthening in energy and crop prices this week
Brent Crude oil prices were generally firmer this week, rising to a peak of $81.4/bbl early in the week. Oil is trading at just over $80/bbl currently as a supply ‘shock’ pertaining to Libyan production has caused prices to rise.
European TTF gas price has gone sideways during the past week and remain in the band of $12-13/MMBtu. US gas prices briefly went below $1.9/MMBtu on the back of recessionary fears in America early in the week but have rebounded to over $2.1/MMBtu – driven in part by month-end close-outs of gas futures, which often triggers some price support as traders rush for cover.
The Rand gained almost 1.5% versus the Dollar this week, which was welcome news for local growers as this reflected in lower input costs. After many weeks of losses, crop prices showed some improvements both locally and abroad this week. The gains were moderate but much appreciated across farming regions. White maize approached R5,500/t on Safex this week as the extent of the poor harvest continues to support local prices. On international markets, soya was the big gainer with a 3.5% increase week-on-week.
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