Nitrogen
Substantial buying from all the major South American markets was not enough to stop the ongoing slide in Urea prices.
Urea prices fell across all major regions this week, despite an Indian tender upcoming and a flurry of purchasing from Ecuador, Peru, Mexico and Brazil. The next Indian tender is expected to be held next week and will require delivery through January. The Middle Eastern producers are clearly under pressure to sell volumes and were aggressively discounting in the market – it would seem that the Indian tender is not going to happen soon enough for them. No doubt the lower prices will encourage the Indians to not only chase as low a price as possible but also buy big volumes.
The Fertilizer Week publication’s headline for urea was “Christmas miracle needed to halt sliding urea prices”, which reflects the widespread view in the urea market that the outlook is for lower prices.
The Middle East granular urea price shed another $20/t and prices on the low end of the spread are below $500/t. With the stronger rand this week, this translates into a local replacement cost for urea of below R10,000/t for the first time since September 2021.
High gas prices in Europe have not prompted the same rush of buying that was seen when prices spiked a few months back. The market anticipates increased buying from Europe early in Q1 as their spring season approaches – whether this will cause a rise in urea prices depends very much on the scale of European purchases.
Ammonium sulphate prices moved down this week as suppliers are trying to shift volumes ahead of the Christmas slowdown. With urea causing nitrogen prices to freefall, the other nitrogen products are all under pressure. Ammonium nitrate prices seemingly have stabilized as rising gas prices in Europe have countered falling CAN values. With not much buying activity expected in Europe over the holidays, AN producers are happy to stick to their prices and rather build stocks in the hope that Q1 demand is strong and they can achieve higher prices.
Ammonia prices were stable again this week, with the only region seeing a price change being the Far East, where the ammonia price fell $20/t. The Middle East ammonia price seems to be holding steady just below the $900/t level.
Urea trade data for imports into South Africa for the period January to October 2022 shows that less than 690,000 tons was imported. This compares with almost 920,000 tons in the same period in 2021, so we’re about 25% behind on prior year volumes. The normal urea demand is around 800,000t/a so we entered 2022 with high carryover stocks. The record high prices seen this year have no doubt slowed purchasing of urea. The late application season will also have played a role.
Phosphates
Unexpected purchasing activity slowed the decline in Phosphates prices this week.
Around 300,000t of DAP were reported to have been bought by India this week as the last volumes for their winter (Rabi) season were covered. Traders selling MAP into Brazil were also able to lift price by $10-15/t. Whether or not this is a sign of a rebound in phosphates or merely a blip on the downwards trajectory remains to be seen. There is no sign of widespread demand recovery and production/supply from many key exporters remains limited, so probability is leaning towards further price reductions in the coming months.
The Middle East MAP producers were able to benefit from Indian buying activity and the higher prices in Brazil to achieve a $10/t increase. At a local level, the stronger rand more than offset this increase, with the import parity cost of MAP dropping around 0.5%. However when the nitrogen value is removed, the underlying value of a unit of phosphate increased almost 1%.
MAP trade data for the year to October shows that MAP imports were 30% down year-on-year at around 190,000t versus 275,000t in the same period last year. Around 30,000t of DAP was imported this year, which partially offsets that difference. Foskor’s production being substantially improved on last year covered the difference.
Potash
Potash prices had another week of reductions, however in Brazil there are signs of demand picking up as potash purchases gather pace
The Brazilian farmers’ appetite for potash is showing signs of picking up rapidly as their Safrinha season approaches. For those unfamiliar with the Brazilian Safrinha it is the second summer crop that is usually maize planted on harvested soya lands in January and February. With the nitrogen levels assisted by the soya crop, urea demand for the Safrinha crop is usually limited, however potash is often the nutrient is greatest deficit after the soya crop. With Brazilian potash application through Q3 and Q4 being much lower than normal this year, growers will need to apply some potash or their Safrinha maize yields will suffer. With Brazilian potash prices having subsided to below $500/t, which is not way above historical averages, and international maize prices looking strong still, it appears that potash demand may recover in the very short term in Brazil.
Whether or not this demand is enough to lift potash prices remains to be seen. Potash inventories in Brazil are incredibly high and growers may react strongly to any attempts to lift potash prices. The local distributors and retailers will need to tread a fine line between maintaining sales volumes and maximizing potash margins.
In other regions, the potash story was the same old gloomy one – very little demand and everyone moaning about the price.
South African import data for 2022 to October showed that potash imports were around 25% lower than the same period last year. This is attributed purely to demand destruction – buyers chose to buy less due to affordability concerns over the record high prices.
General Market Outlook
Brent crude prices saw a dramatic $10/bbl slide this week as prices dropped into the mid-$70s per barrel. Grains prices also suffered this week as energy prices fell and the Rand strengthened.
Fears over the strength of crude oil demand have sent oil prices plummeting. The latest economic outlooks are increasingly pessimistic and this is impacting the oil price. The Brent crude oil price opened the week at $86/bbl and fell steadily throughout to currently trade at $76/bbl. This is the first time since January this year that crude oil has traded below $80/bbl. The European TTF gas has evolved according to local European dynamics and has kept rising despite crude oil prices heading down. The EU TTF gas price rose from around $42/MMBtu to $46/MMBtu. The US natural gas prices fell midweek to around $5.25/MMBtu but are closing the week where they started at just below $6/MMBtu.
At a macro level, international fertilizer prices have a strong long-term correlation to energy prices, particularly the crude oil price. If crude oil prices stabilize below $80/bbl for a sustained period (6 months or longer), then this will certainly support fertilizer prices falling further. If we reflect on the fertilizer price chart at the beginning of this report, it is clear that the fertilizer market has peaked (around April/May) and is now in a sustained down-turn. At some stage fertilizer prices will bottom out, or hit a floor – exactly what the floor price is for each of the products depends on a number of factors. The most critical of these factors is what the breakeven cost of production for the industry is. Bearing in mind that energy costs are the biggest variable cost component for all fertilizers, the crude oil price is a major factor in determining where the floor price will be. The conclusion is thus that the crude oil price level will be very important to monitor as the fertilizer markets approach their next floor price level.
Grains and cereals had a poor week as international prices falling and a stronger rand impacted local prices. The CME maize price fell 2.8% and local Safex maize prices fell 4-5%. Once again soya was the outlier, gaining 4% on the Safex this week.
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