Nitrogen
Sentiment around urea prices remains negative despite the Indian tender consuming almost 1.5 million tons.
Urea prices seem to be headed downwards for the coming weeks and it’s not surprising that the Indians are now talking of yet another tender. Indian urea purchases have been well above Q4 norms but urea prices of close to $1,000/t have not been forgotten and Indian buyers are keen to secure product at what they believe are good prices.
The recent tender locked in almost 3 times the intended 500-600,000 tons but the lack of demand from all other regions has meant that urea prices continue to be under pressure. In fact urea prices dropped $10-20/t at most benchmark points. The one exception to this the Middle East benchmark price, which was unchanged, and we therefore see the South African import parity number not moving much, other than the impact of the 2% strengthening of the rand.
The US market is quiet as it is their Thanksgiving holiday this week, and other markets are either comfortable with stock levels or waiting to see if prices fall further before showing too much interest.
Ammonium sulphate prices saw a $10/t reduction this week as tenders in South-east Asia were able to push the price down. There is quite a wide range in amsul price across the world, with the lowest prices seen in SE Asia at below $200/t, whereas prices in Brazil are nearer the $250/t level. Freight differentials explain part of the difference as most of the product is coming out of China and the voyage to Brazil is much more expensive than to Malaysia or Indonesia.
The ammonium nitrate market is extremely quiet, with European traders reporting a total lack of demand. The price quotes remain unchanged but this was only because there were no transactions reported at all. With European capacity ramping up all the time and considerable Russian product available, AN prices are set to continue their downward slide.
The ammonia price remains in limbo, however recent escalation in the European gas price is getting European players engaging with the market again as the ammonia market price is getting very close to the European production cost and imports may be viable if the gas price keeps rising. In other markets, ammonia supply is in excess and demand remains weak.
Phosphates
All major Phosphates markets saw a hefty price drop this week, as the Middle East led the way with MAP dropping by 6%.
Phosphates supply continues to be low in comparison with prior years with the Chinese moratorium on exports and the ongoing issues with Russian exports. However demand for phosphates is even more reduced and the supply-demand balance is tiled towards excess supply. Prices thus continue to remain under pressure with producers anxious to secure whatever sales they can.
Phosphate prices in most regions dropped $10-20/t but the Middle East price fell most, shedding $35/t from last week. Industry commentators are calling for the market to come into balance in January and therefore expect prices to stabilize then. For this to happen, the current supply restrictions from China, Russia and even Saudi would need to continue – otherwise prices will carry on drifting downwards.
On the local front, phosphate producer Foskor has had one of its better years from a production perspective and has been able to meet all local enquiries and regional enquiries. With the local fertilizer season being quite slow, Foskor has in fact needed to export phos rock and phos acid to balance its inventory, an unusual occurrence for this time of year.
Potash
The downward trend in global Potash prices was evident again this week, as Brazil and South East Asia enjoyed price reductions
South East Asian buyers were successful again this week in realizing some large price cuts on their potash, getting another $50/t off the delivered price. Prices in that region are now below $600/t on the low end of the spread. Brazil also saw prices falling around 5% or $30/t, as prices there now approach the $500/t mark.
The next regional market to enter the spotlight is Europe, where potash prices have not come down meaningfully yet and remain above $800/t. The European import season is now, so aggressive negotiating from buyers should see some rapid adjustments in the potash price. With demand for potash so soft in all regions, it is unlikely that potash sellers will resist too hard.
With delivering to farm continuing to be soft-to-medium in South Africa and ample potash stocks, further substantial imports of potash are unlikely in the next 6 weeks. This means that the opportunity for importers to access the current low international prices and average out their costs is limited. The local potash price is therefore likely to remain elevated as sellers want to minimize their losses on their expensive stock positions.
General Market Outlook
Talk of a Russian oil price cap pushed Brent crude oil prices down. The Rand strengthened marginally which helped local commodity prices stabilise.
Brent crude oil prices slid downwards steadily through the week to trade currently at $85/bbl. The reason for the price fall is the Russian price cap, if implemented, may be above expected oil price levels, which would mean that the Russians would have no meaningful disincentive to supply oil. A worrying development for European producers is the move up in their natural gas prices. The European TTF gas price is approaching $40/MMBtu thanks to threats from Putin to restrict gas flows via the only remaining functional pipeline from Russia to Europe. In the US natural gas prices have edged up this week towards $7/MMBtu on similar fears of the impact of Russian cuts to Europe, which would attract more US LNG exports.
The soft commodity markets were muted this week, with little change to prices both on international exchanges and locally. Maize, soya and wheat all remained within 1% of last week’s numbers, while sunflowers saw a 5% cut on the Safex.
This week the Afriqom fertilizer conference was held in Johannesburg and saw most of the local fertilizer players represented, plus a number of international producers and traders. Some of the key themes that emerged were:
- Most of the neighbouring countries are very short of fertilizer stocks, compared to prior years. In fact some countries have serious concerns about fertilizer supplies for the season, particularly for the smaller growers. The reasons for this are primarily financial constraints that limited their ability to afford the high prices seen for fertilizer this year. As usual, government procurement/tender programmes left much to be desired and no surprise that virtually none of these schemes have met their volume targets.
- Despite the excellent recent rains in the Eastern half of South Africa, deliveries to farm are much slower than usual. All the local fertilizer retailers we spoke to mentioned this issue. While high fertilizer prices are an easy factor to blame, farm economics are still positive at the current grain to fertilizer ratios, so it is not obvious why demand from growers should be so quiet compared to prior years. Perhaps the ample stock levels of all the fertilizer suppliers is giving them comfort that the risk of non-supply is small.
- The shortage of fertilizer throughout SADC may present an outlet for unsold volumes in South Africa. The planting season in most of the other SADC countries is a month or 2 later than South Africa. Of course exporting over the Christmas period is not so straightforward with labour availability and extremely busy roads and border crossings.
- The port delays and resultant demurrage costs are a major concern for the industry. Some players are exploring alternative ports, even ports in other countries such as Maputo. While the transport costs and leadtimes to market may be greater, the extent of demurrage costs more than compensates for this.
Latest Direct Hedge quotes for urea and MAP swaps in USD:
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