Nitrogen
Russia throttled back on gas supply to Europe, which sent EU gas prices soaring and upset nitrogen prices across the board as EU buyers scrambled for product. Urea prices looked set to drop a few days ago and instead now look likely to rise.
Egypt, which is the favoured urea supplier to Europe, saw its urea prices jump over $100/t in the past two days as fears of nitrogen shortages in Europe prompted a wave of spot urea purchases. The Middle Eastern producers, who saw prices in the $490s earlier in the week for sales under the Indian tender, were able to achieve sales in the low $600s last night (Thursday)! This gives an average price that is lower than last week but the reality is that spot urea purchases right now would land in Durban port at around $670/t CFR.
The mood in the urea market has completely swung around, with many players holding the view that urea prices will now remain firm and the question is how high will urea rebound. The urea Swaps/forward market added $100/t to its Arab Gulf urea price quotes in the last 24 hours alone. Our opinion is that the urea market, as it often does, is over-reacting and the degree of price negativity seen last week was excessive, just as the degree of bullishness around the price today is probably excessive too.
The dust has now settled on the recent Indian tender and around 600,000t of urea were confirmed, with shipment to be completed by the end of August. The Indians will need to return to the international market in the next 6-8 weeks. They limited their tender volume in this tender in anticipation of prices falling further – they are no doubt now regretting not buying a whole lot more.
Ammonium sulphate and nitrate saw their prices diverge this week. Ammonium nitrate prices leapt up on the back of spiraling EU gas prices, whereas amsul prices remain under pressure with the recent fall in urea prices. The sulphur market has also tanked spectacularly in the past month, losing over 80%, and this is also putting downward pressure on amsul values. If urea prices rebound significantly in the coming weeks, then amsul prices are likely to reverse the current direction and follow suit.
The ammonia market is expected to react to the EU gas price drama too – the US Tampa price rose $140/t this week, while the European ammonia price itself rose by $40/t. The handful of European producers that were still running have been forced to idle their plants as gas prices rose above $70/MMBtu, which equates to production cost for ammonia of well over $2,500/t just for the gas feedstock component. The Middle East ammonia price has not seen much movement as its natural market in Asia remains very subdued for ammonia. And the Middle East is the most distant supplier to the major western markets.
Phosphates
Phosphate markets around the world saw price reductions as plummeting prices for sulphur, weaker crop prices and ongoing demand destruction are now finally impacting MAP and DAP prices.
Brazil continues to sit on substantial MAP stocks after bumper imports of mainly Russian product for the first half of the year. With Northern Hemisphere seasons now finished and all eyes turning to the Southern Hemisphere, high phosphate prices are hurting demand from the predominantly Third World nations in the south. Affordability is a major concern and the recent fall in crop prices has added to the negative outlook on phosphate usage.
While phosphate prices look set to slowly but steadily decline in the coming few months, it must not be ignored that China is only exporting at 40-50% of its usual volumes. The Chinese government could reimpose the almost total ban on phosphate exports at the end of the year (although this scenario is considered extremely unlikely right now) which would tighten the supply-demand balance rapidly. On the other hand, the Chinese could return to normal phosphate export volumes, which would push the prices down substantially. Energy prices also play a role in phosphate production costs, so this input cost must also be kept in mind.
Rising ammonia prices will start to pressure some of the non-integrated phosphates producers but currently this is countered by the huge fall in sulphur prices. Considering how susceptible many of the factors are to change on a weekly basis, the phosphate price could change just as quickly.
The rand regaining about 3% against the dollar helped local import parity costs this week. The Middle Eastern MAP price shed around $30/t too, which translated to the MAP rand value reducing by 6% week on week.
Potash
Potash prices remain under pressure and price drops start to come through in Northern Hemisphere markets. Potash trading activity in the Southern Hemisphere remained quiet this week.
Potash prices in the US saw big drops as many producers turned away from Brazil to reduce competition and further price erosion and focused on late season ‘refill’ sales in the US. With US potash demand still soft, prices went down. Brazil saw no change in prices and the high inventories are likely to lead to further price drops in the coming weeks. The Southern Hemisphere demand season will kick in soon, so prices are not going to remain under downward pressure for that much longer.
The situation in South Africa is similar – adequate stocks of potash in port and slow retail sales mean that there is limited import action. The stronger rand meant that the import parity value of potash reduced by around 3% this week.
General Market Outlook
Energy prices headed up as Russian ‘interference’ pushed crude oil up to $108/bbl. Grain prices recovered some of their recent losses as hot, dry conditions in the US are increasing the risk of some yield declines.
Oil prices were anticipated to fall on the US Fed’s expected interest rate hike of 0.75% this week. As it turned out, most of this hike had already been priced into oil and the physical crude oil market remains in tight supply. This was enough to see oil rise steadily through the week from $102 to $108/bbl. The EU gas story has been touched on throughout the report already – the main point was the Russians cutting back on supplies through the Nord Stream 1 pipeline despite it being back in service. The European energy market, which has been sitting on a knife edge anyway, quickly reacted and gas prices leapt from low $40s up to $71/MMBtu on Wednesday. The US Henry Hub gas price was influenced by the fuss in Europe and briefly spiked to over $9/MMBtu midweek, before heading back down to $8/MMBtu, which remains a high value compared to the $6/MMBtu average for the past year.
The current situation for fertilizer buying is understandably confusing for growers, who need to make their purchasing decisions soon – fertilizer prices are all over the place and the mood in the international market swings weekly. Fertilizer import activity into the region is well behind historical norms and port delays of about a month add to the supply risk. H1 data for fertilizer imports into Southern and East Africa suggests that imports were down by roughly 50% year on year at 1 million tons versus around 2 million tons for the January-June period in 2021. This gives an indication of the effect of high prices on not only fertilizer demand but also on affordability as credit lines were insufficient to maintain equivalent import volumes, even if the demand existed.
The rand is also very volatile, as are energy prices and shipping rates. Many of the major fertilizer retailers are pointing to very slow sales to farm currently as growers hold out for lower prices. All of which points to a possible mad scramble for fertilizer in the coming months when the first rains appear.
We are looking at putting together a price forecast for the remaining six months of this year and we would like your feedback on whether this would be of interest to you. The forecast would discuss some of the consensus industry forecast scenarios and consider sensitivities around energy prices and shipping aspects. Please drop us a line at This email address is being protected from spambots. You need JavaScript enabled to view it. to give your feedback and express your interest.
Latest Direct Hedge quotes for urea and MAP swaps in USD:
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