Nitrogen
New Indian tender announcement takes market by surprise and adds strong upward support for prices
Just as the last Indian urea tender being concluded, another fresh tender has been announced. This was unexpected by most parts of the market and has caused prices to rise in the benchmark locations that are likely to supply this new tender. Meanwhile in other regions, prices are still falling on the back of the last tender. So we will have a period of a week or two where all the benchmark prices sort themselves out and rebase themselves.
The Middle East producers were comfortable after their sales into the last Indian tender, so this new tender will present them with an opportunity to lift prices. They are in the fortunate position of being able to be bullish in the tender, knowing that they’re under minimal pressure to secure any volumes. And the tender will absorb any surplus (cheap) stocks in the market, which will further tighten supply – enabling producers to achieve higher prices.
The Egyptian price has risen on the back of the tender news, leaving European buyers having to pay higher numbers. There is not a huge amount of European demand at this time of year but importers and distributors will be starting their winter sourcing programmes in the next month or so and will therefore be asking themselves whether it’s better to buy now even though the market is heating up or wait a month and risk being forced to buy at even higher prices.
The Brazilian price was down a few dollars this week – this is a reflection of the soft demand and also a rebalancing of the price against Middle East and other benchmarks after the price movements over the past couple of weeks. Brazil has sourced a lot of urea in the past month and also has a big lineups of cargoes en route – thus Brazilian buyers are not under massive pressure to pay top price for urea right now. The Brazilian price will rise in line with the Middle East and other prices.
The only real ‘joker in the pack’ for urea supply remains China – Chinese exports are pretty much zero, yet the domestic market is oversupplied and local prices are falling. Domestic demand is low and it would really make sense for the Chinese to export as the international urea price is rising. At this stage, there is no indication that the Chinese are going to return to the international market but if they do, this would be the only factor likely to slow the current rise in urea prices.
Iran continues to struggle to place its volumes – the regions that will buy sanctioned products are either saturated with urea or seeing soft demand. So Iran lowered its selling price into the $280s this week and is still seeking customers. We may well see some cargoes being booked for Southern Africa, despite urea stocks being very high, as brave importers take positions on the basis that the new Indian tender in going to push prices close to $400/t in the next month or so – meaning that an Iranian cargo at <$300/t could be very profitable.
Ammonium sulphate sales out of China have been strong and stocks have declined substantially – suggesting that prices will start to rise as the market tightens. So far granular prices have been unchanged but the price crystalline amsul rose a few dollar this week. Higher urea prices can only support stronger amsul numbers and with amsul prices in China at $140-165/t, there is lots of scope for higher prices in the coming months.
Ammonium Nitrate prices remain flat as demand is low – a number of producers are opting to take maintenance shuts now in order to be ready to increase production for the expected increase in demand towards the end of the year. Higher urea prices could see the Brazilians pushing up their AN and CAN buying in the short term, which would help nitrate prices rise.
The Ammonia market continues to tighten, although this has not yet been reflected in higher prices. There are production issues at a number of key ammonia export locations, which are causing buyers to move quickly and secure volumes where necessary. How much upside there is to ammonia prices is a question because ammonia remains out of line with urea prices – although the strengthening urea market may create some headroom for higher ammonia.
Phosphates
Indian demand supports Phosphate prices but there is rising buyer resistance to high prices
A very strong season in India has resulted in above-normal fertilizer consumption. As seen in the previous section, this has prompted a new urea tender. The situation on phosphates is growing increasingly difficult for India – the bare facts are that DAP is unaffordable at current levels after the Indian subsidy and maximum retail prices are factored in. Indian importers are thus running at a loss and the Indian authorities continue to pressure the importers, who are para-statals, to ensure adequate supplies of phosphates.
This week saw Indian DAP purchases rising towards the $640/t CFR level as limited availability of product forced buyers to pay the higher numbers. The situation is rapidly becoming untenable and unless the Indian government is prepared to raise its phosphate subsidy, something is going to crack in the present phosphate supply model into India.
A quick reference to our price chart at the top of this document shows how phosphates are way out of line with nitrogen and potash when looking at the long term trend. While there are different cost drivers and dynamics and different production locations for these different nutrients, the demand-side factors are largely similar. For effective and efficient plant nutrition, the nutrients have to be applied in appropriate ratios – phosphates becoming unaffordable and thus being applied less threatens yields.
MAP sales into Brazil picked up this week but the trades were done at the prevailing price of around $635/t.
Potash
Potash markets are generally subdued as demand is weak
The potash price in Brazil dropped a few dollars this week as the price there heads below $290/t CFR, to move in line with most of the other major buying regions. With the market being long with product, buyers holding tenders have been quick to cancel tenders where prices are not in line with their (low) expectations. It remains a buyers’ market and potash producers appear to be content to just to ensure that they keep volumes moving.
General Market Outlook
US raises interest rate to fight recession.
Brent Crude oil remained in the low-$70s/bbl this week as widespread pessimism around the major world economies pushes oil prices down. Today oil is trading at $74.7/bbl. The US Fed cut interest rates by 0.5% in a move to try and counter the slowing US economy.
Natural gas prices in Europe have eased down as the European TTF index has trended towards $11/MMBtu. The US gas price has hovered in the band of $2.3-2.4/MMBtu.
The Rand made further gains against the Dollar this week as the Dollar is struggling against most economies on the back of a poorer economic outlook. The Rand is presently at R17.50 to the Dollar but briefly went to R17.40 yesterday.
International grain prices firmed this week, helped mostly by the weaker Dollar – maize moved up strongly by 5% and soya and wheat both showed decent gains too. Local prices have declined a little as the effect of the strong Rand has come through in some profit-taking. Should the rally in international prices continue, then we can expect to see the Safex values resume their rise.
Latest Direct Hedge quotes for Urea and MAP Swaps in USD:
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