Nitrogen
Urea demand took a big hit around the world this week as maize and wheat prices slid downwards. The Middle East urea price dropped around 6% but the weaker rand meant that local importers only saw a 3% decline in the import parity cost of urea.
With a pessimistic mood on crop prices, most spot urea buyers are happy to sit back and see where prices might go. There was also news this week that Indian urea stocks are a bit higher than anticipated, so the Indian tender that was expected next week could well be pushed back to the end of July. This delay in buying will add more downward pressure to prices.
As mentioned last week, the unclear situation with Chinese urea exports has kept traders away from purchasing Chinese product. Apparently a dozen of the biggest Chinese urea producers have been requested by the government to suspend urea exports. If China was exporting at its usual volumes for this time of year, the urea price would be under even more pressure. We can expect the urea market to remain incredibly volatile, with the price ready to turn up or down very quickly as events unfold. Many urea producers around the world are reporting high inventory levels, which is not unusual for this time of year as the market emerges from the quietest quarter of the year and anticipates Q3 buying to pick up.
The gloomy news around falling crop values impacted ammonium sulphate as last week’s big price increase was short-lived and amsul dropped around $25/t this week. CAN was the one anomaly this week as another enormous jump in European gas prices caused CAN prices to rise around 5%. On the other hand, Russian ammonium nitrate prices continued to fall. To give some context to the gap between European CAN (26-27% N) and Russian AN (33% N) – European CAN prices are around $675/t while Russian AN is being sold at $285/t ex-Russia. Of course the shipping out of Russian ports is very expensive in light of sanctions and increased insurance etc but Russian AN prices delivered in Europe would be around $350/t, basically a 50% discount on European-made CAN.
The outlook for amsul and AN prices is linked to the urea price – while urea remains relatively soft, the other dry nitrogen products will see their prices staying where they are.
The unexpected surge in European gas prices from $40/MMBtu a week ago to $51/MMBtu today (it peaked at $56 on Thursday) caused havoc with ammonia prices. Most European ammonia producers have idled their plants and are therefore dependent on imported ammonia. The ammonia traders are of course aware of this dependency and were quick to seize the opportunity when European ammonia consumers came into the market this week. This pushed the Middle East ammonia price up by $110/t, which will be unhappy news for the primary ammonia importers in this region, Omnia and Foskor.
Phosphates
The Indian quarterly phos acid price was finally agreed at $1,715/t, a $185/t increase on the previous price. This has stimulated buying activity for phosphates from India, as prices for phosphates in most markets registered a fall this week.
The phos acid contract price being agreed is significant because it sets the production cost for DAP in India (most Indian DAP is manufactured using imported phos acid and imported ammonia), which in turns sets a baseline for imported DAP into India. With phos acid being stuck at the Q1 price of $1,530/t, Indian DAP buyers had hit the ceiling at which importing DAP no longer made financial sense. With the phos acid price being agreed at a higher number, the breakeven DAP import price has shifted up a little and has stimulated some Indian DAP buying.
The Indian phos acid price also sets the price of phos acid locally, so liquid fertilizer buyers should expect a painful increase in their fertilizer bill for the phosphate component of their mixture.
In Brazil it is the same story of the past month – lots of Russian imports have boosted stock levels and with limited demand, the importers are now being forced to discount the price to shift some volume. Around the world, lack of demand (or demand destruction due to high prices) is putting MAP prices under pressure. Phosphate (DAP and MAP) prices have declined around $30-50/t in the various markets this week. The Durban CFR value dropped around $35-40/t this week but the rand losing 3% versus the dollar ate most of the saving. Opinions suggest that MAP should settle around the $900/t fob mark, which is about $25/t below where Durban import parity currently sits ($980/t CFR Durban).
The news on Chinese phosphate exports is that around 2 million tons of export quotas have been approved by the Chinese government. For Q3 2021 Chinese phosphate exports were around 3.7 million tons so the quota volume is still well short of historical volumes. The quota volume is expected to grow as Q3 has only just started and applications are ongoing, with estimates suggesting around 2.5 million tons could be exported during this quarter.
Recent trade data for South Africa shows that MAP imports for January to May period were similar to the same period last year at around 67,000t of MAP imported. The bulk of this volume comprised two shipments – one from Russia and the other from the Middle East. In the same period South Africa (Foskor) exported 224,000 tons of phosphate rock, whereas for the same period last year no rock was exported at all.
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Potash
The potash market is characterized by very weak demand and prices that have been under downward pressure are now starting to edge lower.
The story for potash is unchanged from the past month – namely that supply from Russia and Belarus has surprised on the upside, with the result that stocks are relatively high in many importing regions. The high price of potash has hurt demand and retail sales volumes have been way down compared to previous years. The market is focusing on Brazil and looking at retail sales to gauge demand as Q3 progresses. If sales remain slow, then potash prices will come under further downward pressure that will cascade across most markets, including Southern Africa. If Brazilian sales are very strong, then potash prices will likely stay at the current $1,000/t level for the coming months.
The EU has issued a quota for Russian potash that can be imported – the volume is much reduced from traditional levels at around 900,000t but it represents about 70% of 2021 import volumes from Russia to Europe. This will further ease supply in Europe and can be expected to put some downward pressure on EU potash prices.
At a local level, the potash CFR value dropped by $50/t but the weaker rand meant that the effective import parity cost reduced by less than 2%.
General Market Outlook
Crude oil follows the general commodity downturn with its price dropping to $104/bbl.
The rising fears of global recession hurt all commodity markets this week. Brent crude oil was not immune and shed $8/bbl as it slid to $104/bbl today. The gas markets ran contrary to the commodity trend as a 40% spike in the already-high European TTF gas price dragged US gas markets up too. The US Henry Hub gas index rose $0.5/MMBtu to sit at $6.2/MMBtu currently. As mentioned earlier in this report, the European gas price briefly touched $56/MMBtu on Thursday and is currently trading at $51/MMBtu. Needless to mention, the production of any gas-based fertilizers in Europe is completely uneconomical at this gas price.
Across the board, agricultural soft commodities all saw substantial drops this week on international markets. The declines were severe enough that even the softening rand did not support local prices as cereals and oilseeds all registered lower prices this week. While this is not ideal for growers, it must be remembered that the US Fed and a number of the leading world central and reserve banks have been taking steps to reduce inflation and most of the commodity price fall that we’re seeing now results from these actions. Energy prices are lower, which not only contributes to lower soft commodity prices, but both energy and commodities being lower helps reduce inflation a little – bitter but necessary medicine!
Conversations with a number of local importers this week threw up a common theme – the Durban port inefficiency is creating a massive headache and cost for the agricultural industry. Inbound vessels are realizing a minimum of 15 days demurrage and in many cases, the demurrage is 30 or more days. With vessel time-charter rates at $35-40,000 per day, the size of the demurrage bill is easy to estimate. In some cases, the importers are able to pass this cost on to the local receiver but in other cases the importer has to bear the cost. Of course, this cost is an increase in the cost of handling fertilizer, so it is being added to the selling price and the growers in our region pay for it.
Ultimately the port authority (Transnet Port Authority) and the government needs to repair the ailing port infrastructure, plus streamline the process by which ships are allocated berths. The land-side operations are also very inefficient due to the atrocious state of the port roads and the congestion that results from poor planning around vessels and discharging activities. Although it is too late now, we remind our readers of our message to be more proactive about your fertilizer purchasing and seriously consider buying earlier in the year, not just for price reasons but also to reduce your exposure to the port chaos and resultant higher costs for the port operation.
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Latest Direct Hedge quotes for urea and MAP swaps in USD:
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