Nitrogen
The big spike in gas prices in Europe triggered urea buying and has caused a big rebound in the urea price. Nitrates in Europe have also moved upwards in response to higher production costs, while ammonium sulphate continues to soften.
The sudden emergence of buying from Europe took the urea market a little by surprise and reversed the 8% drop seen last week. The urea market is now watching the upcoming Indian urea tender closely, as well as buying activity from Brazil. The Indian tender is due to take place in mid-July and delivery is expected by end of August. The Brazilian buying activity is about a month later than usual for their summer rainfall season, so a pick up in urea purchasing is anticipated and will add some support to urea prices.
As we’re now moving into Q3 and southern hemisphere buying will pick up pace, urea prices have probably hit their low for the year. Buyers will now be anxious watching how quickly urea prices head back up and to what level.
Lack of demand for ammonium sulphate caused those prices to continue their downward dive, dropping another 13% this week. Amsul is now a cheaper form of nitrogen than urea, due to urea’s rebound this week, even if the value of sulphur in amsul is ignored. It seems likely that amsul prices will start to rise as buyers look beyond urea. The two-tier ammonium nitrate market saw a widening gulf between the two prices classes – Russian AN prices weakened again this week while AN from other origins saw prices rise in sympathy with urea.
Ammonia prices saw no movement this week as most buyers/consumers are adequately stocked for now. The spike in EU gas prices has prompted speculation that ammonia prices could begin to move back up but as yet prices are unchanged.
On the local front, the small strengthening in the rand helped ease the pain in the urea price jump this week. Our understanding is that there are reasonable urea stocks in Durban port and product is being offered in the mid-R12,000s per ton. With the market continuing to be volatile, sellers will be adjusting their prices on a weekly basis, so buyers would be well-advised to be decisive and lock in prices quickly once they have decided to buy.
Phosphates
The phosphates market remains under price pressure, although prices remain unchanged across most benchmark locations. Chinese phosphate exports continue to pick up pace while demand in most locations continues to be weak as buyers consider prices as being too high.
The demand for spring application phosphates in North America and Europe is gone and producers are now waiting for the Southern Hemisphere to start buying in earnest. The Southern Hemisphere buyers are reluctant to overcommit at current prices and so there is a ‘stand off’ at the moment. Brazilian prices have dropped by $10-15/t, which is not a meaningful fall that will get buyers excited about buying. But it does give a signal that phosphate prices are under pressure. Unlike urea, Brazilian phosphate stocks are high on the back of all the Russian shipments to Latin America.
Asian markets are not buying much spot phosphate and most of the activity right now relates to the delivery of phosphates and NPKs that various Asian countries have bought under tender. The Indian subsidy scheme does not come close to making phosphate imports profitable for private sector traders, so Indian purchases are being conducted by state entities only, and in limited quantities.
Our understanding is that Foskor’s production has been running well over recent months and continues to do so. The lack of phosphate inventory in the region means that all its product is moving quickly to buyers ahead of the upcoming season. Phosphate import cargoes are now being booked for Beira and Durban so we expect inventory levels in the ports to gradual build up. Of course the massive berthing delays remain a worry and could well be a critical factor as we get closer to the season in September/October when the rains begin. Delays are currently about 30 days, which not only adds a significant cost to imports (around $40/t for demurrage) but increases the risk of growers not receiving fertilizer in time.
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Potash
Prices remained flat at most potash benchmark locations this week. Potash prices are starting to fall in some Asian markets and the general outlook for potash prices is for weaker pricing.
Talk of some moderate price falls in Brazil is doing the rounds and with Brazil having received huge volumes of potash from Russia, it’s hard to see potash prices heading anywhere but down. The questions on everyone’s lips are “when” and “how much”. With Southern Hemisphere demand slowly kicking in as Q3 approaches, potash sales will start to pick up, which will slow any price decrease. If prices do not move down in the next month or two then rising demand should ensure that potash prices remain stable. Supply of potash remains limited so the supply-demand balance is not going to swing to oversupply any time soon.
General Market Outlook
Crude oil drops almost $10/bbl as fears of an economic recession increase. Rising US interest rates send stock markets and commodities heading downwards.
Brent crude oil dropped from $120/bbl to $111/bbl as markets see demand reducing due to increasing concerns of a recession looming. The US Fed raising interest rates to tame inflation has cooled commodity markets and crude oil prices have responded accordingly. As far as gas prices go, the European TTF gas price rose above the $40/MMBtu level and currently is sitting just below $40. European gas prices are unlikely to see any relief until the gas supply situation to Europe is resolved in some way. The price of gas in the US has eased down to $6.25/MMBtu which is bringing relief to US gas consumers, including nitrogen producers.
The US CME maize price has continued to show losses as widespread forward selling continues. Safex maize prices have also moved downwards in sympathy with the dollar price and the rand strengthening has added to the local price decline. Oilseeds are also down across the board for similar reasons.
Shipping rates eased a few dollars this week, which improved netbacks for fertilizer sellers and exporters.
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Latest Direct Hedge quotes for urea and MAP swaps in USD:
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