Nitrogen
Urea prices took another step downwards as Egypt led the way with aggressive price cuts to generate sales. Retailers in major markets have been slashing prices to growers to liquidate their stock positions ahead of cheaper imports arriving
With their traditional export market of Europe drying up, the Egyptian producers elected to slash prices by up to $80/t this week – such large cuts were required to match prices in target markets such as Brazil. This move started a chain reaction of price cuts from most of the major production regions. On the other hand, the Indians surprised the urea market by announcing another tender closing in mid-November that calls for 1 million tons to be delivered by 22 December.
Urea was sold actively in the interior of the big domestic markets in the Northern Hemisphere. Traders and distributors holding inventory in the interior USA and Europe are concerned about the threat of new imports arriving at much lower prices than their positions. The Middle East urea price dropped around $20/t but producers are not prepared to go lower as they have lots of tons to deliver under the recent Indian tender and thus don’t need to chase more sales.
The market view this week seems to be that the slide of urea prices now has probably hit the bottom, and the next Indian tender will provide enough demand to cause prices to start an up-turn. This is understandably the message that producers wish to be sending, with the knowledge that their best sales period in the year is now. Considering that trade volumes to most buying regions have been strong over the past couple of months, it remains to be seen how strong demand will continue to be – especially if urea prices rise rapidly.
Ammonium nitrate prices continued heading down this week, and CAN in particular saw a big price cut. The European inland CAN price lost another $30/t this week, which sees CAN touching on $700/t currently, compared to $850/t just a month ago.
The ammonia price saw a small downward adjustment this week, as the Middle East ammonia fob price dropped by $25/t in to the mid-$900s. South African ammonia imports for the first 3 quarters of 2022 are the same as the same period last year, at around 110,000t.
Latest South African urea trade data shows that imports for the January to September period are more than 20% down this year versus the same period in 2021. Official urea imports up to the end of September were around 580,000t compared to almost 750,000t last year. Urea imports for the month of September 2022 were around 160,000t, which is in line with historical norms – however very little urea arrived during August. South African urea imports are usually around 800,000t p.a. so even with carry-over stock from 2021, there is still a good 100,000-200,000t to be imported.
Phosphates
The Phosphates market was stable this week, as India released its updated fertilizer subsidy scheme.
Phosphate prices in both North and South America held steady this week as demand, particularly in Brazil, improved. The closure of the river system that would deliver phosphates to the US Corn-belt means that US prices are at risk of falling as traders only have a handful of customers to target.
The Indian Nutrient-Based Subsidy (NBS) scheme was finally a published this week, a few months later than the market hoped for. The significance of the NBS scheme is that it sets the breakeven cost of phosphates in India – the comparison between imported DAP and MAP and locally-produced MAP/DAP using imported phos acid. Once the subsidy has been factored in, Indian players then tend to buy whichever product is more profitable and the breakeven point sets a target price above which the Indians buyers are unlikely to go (because they would then be trading at a loss). The latest edition of the NBS scheme indicates a breakeven value for imported DAP at $815/t CFR India, which compares with the current Indian CFR DAP price of $750/t. In theory this means that the Indians would/should be importing DAP profitably and this could stimulate demand for phosphates on the international market and support prices up to the $815/t mark. In reality, India has purchased much larger volumes of phosphates this year than last, so the actual requirement for phosphates is not enormous. The Indians are also well-aware that the only thing that will really move phosphate prices up in the current market is significant buying by themselves – therefore they are likely to moderate their purchasing to try and keep prices at current levels or even push them lower.
MAP imports into South Africa up to September are about 20% lower than the corresponding period last year. MAP imports for the first 3 quarters were around 185,000t, which is 40,000t behind last year. The high phosphate prices have damaged local demand for phosphates, while Foskor’s production being somewhat better than prior years has reduced the need for MAP imports.
Potash
Potash prices saw substantial reductions in most major markets around the world this week.
Brazil, South-East Asia and the US Gulf all saw potash prices decline around $25/t this week. The Indian subsidy scheme revision that we touched on in the Phosphates section also saw a cut on the subsidy for potash. The revised Indian subsidy would mean a $60/t on potash imports at current price levels. It is simple to conclude what this means for Indian potash buying – with minimal Indian demand for potash, potash prices have additional downward momentum.
The South African CFR potash price was unchanged this week and continues to hover in the high $700s. With Brazil now trading at below $600/t, the Durban price is looking expensive. Normally the annual contract discussions between the Indian and Chinese buyers and the major potash producers would be underway for 2023 volumes. However in the current market with falling prices, the buyers are happy to hold back and not do anything to interfere with the price slide. Some early indications are that these contracts may be targeting prices of around $425-450/t. It is unlikely that the negotiations are concluded before probably Q2 next year and a lot could happen in the next 6 months. We do feel that a price in the mid-$400s is a fair estimate for the potash floor price.
General Market Outlook
Brent crude oil trades in the mid-$90s per barrel, while the Rand loses nearly 2.5% against the US Dollar this week.
Brent Crude prices bounced around this week, briefly going as low as $94/bbl midweek before rising back to $97/bbl where it was a week ago. The weaker dollar resulting from the US Fed raising interest rates by another 0.75% this week has driven the rebound in oil. The European TTF gas price firmed this week rising up to $37/MMBtu, which won’t please European gas consumers. Interestingly, there are now more than 60 full LNG (liquefied natural gas) vessels anchored outside European ports – European gas storage is reportedly close to full and many gas traders are betting on European gas prices spiking again as winter sets in. The forward gas prices for December are substantially higher than for November and likewise January is higher than December, so the incentive to hold positions is clear. Contrary to this view, Goldman Sachs is predicting that European gas prices will fall by around 30% between now and some point in Q1 next year. While European gas prices remain a lottery, at least there is ample supply of gas for the coming winter months.
International maize prices saw a slight reduction this week as weak US demand outweighed the impact of the collapse of the latest Russian grain deal. The weaker rand helped local Safex maize prices rise by almost 1%, partially offsetting the lower CME price. There was much better news for the oilseed producers as the CME soya price gained over 3% and the full extent of the weaker rand flowed through into local soya and sunflower prices rising 4-5%.
Latest Direct Hedge quotes for urea and MAP swaps in USD:
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