Nitrogen
Urea prices take a big hit as the over-supply situation forces producers to aggressively cut prices. The outlook for Nitrogen is negative as buyers delay purchases in expectation of even lower prices.
The Urea market ‘bears’ were out in full force this week as prices tumbled in most regional markets. As mentioned last week, higher US prices have attracted a lot of interest from producers sitting on big stock positions and that has caused American prices to tumble this week. US prices now represent a netback to the Middle East of around $330/t FOB, which is a very low number. The Middle East FOB price dropped almost 10% this week and is currently around $390/t. With the US netback equivalent well below the current quoted price, it seems likely that Middle Eastern urea will fall further – unless significant demand emerges soon. The next big Indian tender is only expected in February at best and talk of it being pushed back into March is causing the market to be quite pessimistic.
Opinions in the market are unanimous that urea prices are set to fall further in the short term. While we agree with this sentiment, it does also seem that the urea price fall has been overdone and the prospect of some sort of rebound is probable when the Indian tender is announced and some spring buying emerges from the major northern hemisphere markets. Given where oil and prices are presently, our view is that an equilibrium or par value for Middle East urea is probably in the low to mid-$400s. Any local buyers of urea currently in the market, such a tax buyers, could do well to lock in urea at current prices, presuming that they can find local sellers with stock or that are prepared to commit at current prices.
The Ammonium sulphate markets were inactive this week again thanks to the Chinese New Year holidays. Amsul traders hold the view that prices need to reduce further to encourage serious trading, considering that urea prices have fallen so far in recent weeks. Ammonium nitrate prices fell around 5% this week but remain well above urea nitrogen values, which is keeping buyers at bay. CAN dropped $20/t in Europe and AN prices in Brazil fell $40/t this week but buying interest remains very quiet as buyers hold back in hope of lower prices. Producers have resigned themselves to waiting until the end of February for real buying interest to develop.
Ammonia prices continue to slide down in sympathy with the overall nitrogen market. Another price cut occurred in the Middle East with a reduction of $30/t. The biggest market move was the Tampa CFR price, which is a two weekly contract price – the Tampa price quote dropped $185/t, dropping to $790/t CFR which is broadly in line with other regional prices. Comparing Middle East ammonia and urea values on a nitrogen basis shows that ammonia is trading at a 5% premium ($0.89/kg nitrogen for ammonia versus $0.85/kg N for urea), which is not sustainable considering that ammonia is the precursor of urea. In other words, the selling price of urea does not cover the value of the ammonia used to produce it.
Phosphates
Little activity in Phosphates markets this week, as the quarterly Indian phos acid negotiations stagnate.
The phosphates market has paused as developments in India take centre stage. With nitrogen prices plummeting and the Indian government insistent on massive fertilizer subsidy cuts, Indian bids for phosphates are well below the most recent prices. Knowing that lower MAP and DAP prices will require much lower phos acid prices in order for domestic production to breakeven, Indian phos acid buyers have paused their price negotiations to see where MAP and DAP prices end up.
This pausing of market activity in India is spilling over to other regions as buyers in Brazil have now ceased their buying in the hope that the Indians force prices much lower. Major phosphates producers OCP and EuroChem have been pushing sales in Brazil but with little interest from local buyers there.
European phosphates trade has also been limited, with industry commentators expecting prices to move downwards in line with other regional prices before spring purchasing will start.
The Middle East MAP price has remained unchanged so far for January, however reported sales and export volumes for the region for January and February are well below production capacity. The Saudi producer will be under pressure to reduce prices or risk significant inventory build up. With MAP demand in the Southern African region entering its quietest period of the year, local prices are likely to be under pressure.
Locally, the long overdue Kropz phosphate rock project near Langebaan sold its first full cargo for export last week. The project downgraded its reserve estimates late last year and has suffered numerous issues ranging from technical to financial that have delayed its start-up.
Potash
Potash markets were quiet this week as players await stronger signals on price direction.
Most regional potash benchmark prices were unchanged this week. Prices in most Northern Hemisphere markets, where there should be some spring demand, remain above price levels in Brazil. This is causing European and American buyers to be very cautious with volumes as no one wants to be caught with a large stock position if or when potash prices correct in their market.
Traders active in Brazil are trying to talk potash prices up on the back of reported strong sales, however the Brazilian price has been unchanged for more than a month. The extent that the Brazilian price might move will be determined by the consumption of potash versus the amount of stock in country – if all of the stocks are depleted, then suppliers may be able to push a price increase for fresh cargoes going to Brazil. But any price increase is likely to be limited as the potash market remains oversupplied globally and producers will be wary of upsetting demand in other regions.
General Market Outlook
Brent crude oil prices rallied again this week due to ongoing easing of Covid restrictions in China.
Brent crude prices firmed again this week, rising $2/bbl to $89/bbl week on week. A smaller than expected build up in US strategic crude reserves also added some strength to oil prices. The European TTF gas price has declined steadily through the week and is now approaching $18/MMBtu, despite some concerns that a cold snap in Europe might raise gas prices. US natural gas prices enjoyed a 20-month low falling below $3/MMBtu and currently hovering at $2.9/MMBtu. This is well below the US Energy Information Administration’s forecast that the Henry Hub price would average close to $5/MMBtu for Q1 of this year.
The Rand recovered about 10c or 0.5% against the dollar this week, which reduced the import parity cost of MAP and potash by the equivalent amount.
CME corn and soya rose around 1% this week, and wheat climbed 2.5% driven by news of lower than expected forecasts for Ukrainian production for the coming season. Safex prices were relatively stable.
Latest Direct Hedge quotes for urea and MAP swaps in USD:
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