Nitrogen
The approach of the next Indian urea tender and the lack of production in Europe due to ongoing high gas prices caused the urea market to stampede and prices leapt up this week.
The display of ‘herd mentality’ was obvious this week as European buyers started shopping around for product. The Egyptian market was the first to respond, with urea prices running up quickly in the early part of the week, and then European buyers turned to other origins which lifted prices in those markets too. This caused a chain reaction of price movements around the globe as buyers in other regions decided to join in, even though there are no new supply constraints or concerns.
The Middle East urea price gained $50/t this week, wiping out most of the decline that we saw last week. The price jump stampeded the American buyers into action as traders look for prompt cargoes so that they can deliver into the Cornbelt before the Mississippi River is closed to barge traffic for the winter in October. Likewise, the South Americans decided that they could not hang back any longer and entered the market too – prices in Brazil rose around $25/t even though they have ample stocks for the short term.
The mood in the urea market is very bullish for prices to rise higher on the back of the September Indian tender. Our feeling is that the market is probably a little overheated and the price ideas may be a bit optimistic but for the next few weeks, it is clear that urea is headed up as Europeans look for urea to cover their ammonium nitrate shortfall and start their winter fill programme, and the Southern Hemisphere markets have started their season.
Yet another shock on EU gas prices, with natural gas spiking almost 50% in the week, to hit the almost unimaginable price of $100/MMBtu – caused havoc in European fertilizer circles. Ammonium nitrate prices responded rapidly and CAN rose $35-40/t, despite the season being over. There is virtually no CAN production in Europe now, so any CAN needs to come from the handful of non-European producers. The Russians are the biggest CAN producers outside of Europe and there is talk that the Europeans may dive in and buy Russian product and ignore sanctions. To put this in a South African context, a unit of nitrogen from (imported) CAN is 115% (R55.3/kg nitrogen) more expensive than urea (R25.9 kg nitrogen) if compared at Durban port.
In contrast to the AN markets, ammonium sulphate continues to trend downwards due to supply exceeding demand. It is difficult to see the amsul price continuing downwards for much longer when all other nitrogen products are moving upwards.
Ammonia prices were influenced by the EU gas price movements this week, as the Middle East price rose by over $70/t to touch on $1075/t. A week ago, the ammonia market was quiet and the price was stable. Now the market is being seen as tightening with Europe expected to buy up much of the surplus ammonia available in the market. Ammonia prices are still relatively high in comparison to the other nitrogen products, and with ample supply still around, the ammonia price is not expected to rise massively in the short term. But more bad news in the energy markets or unexpected outage of a major production facility and the picture could change rapidly.
Phosphates
Global phosphate prices continue to be constrained by low seasonal demand, high stocks in key markets and resistance to high prices. On the supply side, product is readily available and supply volumes are expected to increase further in the near term.
The main buying activity this week was led by India purchasing DAP at prices $10-20/t lower than last week’s numbers. The wider view is that MAP and DAP prices remain too high to encourage big volume buying and until there is a meaningful downward adjustment in prices, buying interest is going to be very limited.
There was a $20/t drop in the Brazilian MAP price this week and domestic sales continue to be slow. With MAP stocks in the Brazilian ports remaining very high, there are growing concerns among international traders that Brazilian demand for import cargoes may remain low for the rest of the year. The Brazilian and Indian price reductions pushed the Middle East MAP index down by $20/t, which plays through into our Durban import parity costing. With the value of nitrogen (from urea) increasing by 7% this week, the resultant cost of a kg unit of phosphate dropped by 5% - much needed good news for local growers as the application season begins.
In terms of the supply-demand balance for phosphates, the Moroccan parastatal OCP, who is a major producer, is expected to increase its phosphates production by more than a million tons in the second half of this year. If this materializes, it would add further downward pressure on prices. On the other hand, the European gas issue and possible increases in ammonia costs could squeeze production margins for MAP/DAP producers and potentially limit production volumes, although there is no sign of this yet.
A similar outlook to last week - more price reductions for MAP are possible while the global supply-demand balance is tilted towards supply. The flag for growers to watch closely is local availability of MAP – if there is a stock-out situation in the region, the lead-time for an imported cargo is likely to be around 8 weeks, considering current port congestion/delays and sailing time.
Potash
The international potash price slides continued this week, although at a much slower rate. On the local front, potash remains unchanged on the back of minimal sales activity into the market.
The outlook for potash prices remains negative, with ongoing price reductions expected in the coming months. There is no expectation of a price collapse or any price adjustments to the extent of those seen in urea, for example, but small reductions every few weeks. The historical behaviour of potash is for very gradual and sustained price directions – so prices tend to have momentum and up- or down-turns are usually sustained. This is the behaviour that we’re seeing now. For a reminder of our more in-depth explanation of potash markets, especially for our newer subscribers, please take a look at our YouTube video on the potash market here.
The price in Brazil moved $10/t down this week, and similar declines were seen in most other major markets. The South African CFR (delivered) potash price remained unchanged and is sitting $150/t above the Brazil CFR price, which is an unsustainable premium considering that the South African and Brazilian prices traditionally trade on a rough parity. While local potash sales have been picking up, some price reductions appear probable in the coming few months.
General Market Outlook
Crude oil prices showed strength this week as OPEC hinted at some production cuts and the demand outlook was raised. The grain market enjoyed another buoyant week as maize prices reach two-month highs.
Brent Crude oil climbed steadily through the week, rising above the $100/bbl level for a short while, before settling at $99/bbl presently. The prospect of a ‘nuclear deal’ being done between the West and Iran increases the possibility of Iranian oil exports resuming to all markets, which has prompted the OPEC to suggest production cuts to balance the increase in Iranian exports. In what is becoming a regular event, Europe endured yet another gas price shock as the Russian gas exporter, Gazprom, shut down the main gas pipeline to Europe, Nord Stream 1, apparently for maintenance and possibly to jerk the Europeans around. The predictable consequence has been EU gas prices going crazy and jumping to above $100/MMBtu during this week. This development has prompted a lot of European energy consumers to stop their operations. With the European winter fast approaching and Europe’s reliance on gas for heating, some even more challenging times lie ahead.
The CME corn price rose 6% this week as the US crop condition continues to be downgraded and droughts across much of the northern hemisphere production regions impacts yields. On the Safex the rise in maize prices have been even more marked, with white and yellow maize recording weekly increases of 8% and 9% respectively. Soya and sunflower gained 6% and 5%, rounding out a solid week for Southern African growers.
Latest Direct Hedge quotes for urea and MAP swaps in USD:
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