Nitrogen
Middle East Urea price drops $50/t this week, as worldwide urea markets tumble. Other Nitrogen fertilizers look poised to move downwards too
Last week’s big drop in Urea prices was repeated with a similar drop in most regions. The Middle East urea price benchmark, which did not move much last week, was the biggest mover of all with dollar prices falling more than 12%. The Middle East fob price is now below $350/t for the first time since March 2021. With buyer interest in urea almost non-existent, Middle East producers have opted to send cargoes to the US in anticipation of the Mississippi River system open and being in position for US spring buying. Current US urea values equate to netbacks to the Middle East of close to $300/t, which gives an indication of what the Arab producers are prepared to accept and how desperate they are to shift volumes.
The Brazilian market was not immune to price developments elsewhere and prices there declined $20/t this week to now approach $350/t. This level also points to Middle East netback values of close to the $300/t mark, so it seems probable that urea prices are heading that way in the next month, barring an unforeseen market shock.
The Indians being ever-awake to market developments have predictably postponed their next big urea tender even further to late March or even early April. No doubt the Indians will be following the market closely to ensure that they do not miss this buying opportunity. In the short term, this delay represents a further reduction in demand and will exacerbate the short term price weakness.
With negative sentiment in all regional urea markets, a price of $300/t or possibly lower looks likely to be the low point of the year and a prime opportunity for early buyers. It is earlier than normal in the year for prices to bottom out but prices at $300/t are well below present market fundamentals and the speed of the decline is likely to prompt an equal and opposite rebound once the market bottoms out.
Ammonium sulphate markets were quiet this week, with buyers probably more focused on urea developments and not keen to lock in prices now. With urea nitrogen values way cheaper than amsul nitrogen, amsul prices are likely to be dragged down by urea. Chinese amsul production is high and early indications suggest that Chinese amsul exports could hit record highs, with Brazil being the most likely target of those exports. Ammonium nitrate prices in Europe reduced courtesy of lower gas prices improving production economics and declining nitrogen values thanks to urea. The CAN price fell $40/t this week but still did not keep pace with urea values.
Ammonia prices moved down in sympathy with the wider Nitrogen market, however the price reductions were small and nowhere near enough to encourage any buying interest. Some ammonia producers in the Middle East have taken advantage of the demand vacuum to take maintenance turnarounds, which has the effect of tightening supply. The ammonia market remains short of demand and ammonia prices will follow urea’s direction down for at least the next month and maybe longer. The ammonia price is predicted to decline from the current $700/t to at least $600/t.
Import trade data for urea into South Africa for the full 2022 year shows that 850,000t was imported, against over 1 million t in 2021. The 2021 imports were higher than usual, thus opening stocks going into 2022 were high and import requirements were a bit lower. The record high prices seen last year also would have discouraged some buying. The net result of lower imports in 2022 is that opening urea stocks for 2023 are low. Falling prices will have buyers delaying purchases rather than booking cargoes.
Phosphates
Lower price outlook for Phosphates with input costs declining and a much lower Indian fertilizer subsidy budget.
The DAP market was the main mover this week, as prices in Europe and the US moved down. The MAP market remains unmoved, led mostly by Brazil where the price has been unchanged since December. Brazilian imports for January and February are already at 620,000t, which is 25% up on the same period last year. With such big product in-flows and inventory, it is difficult to argue how prices would go in any direction except down.
The rest of the Indian phos acid importers agreed this week to the same Q1 phos acid contract price of $1,050/t as Foskor secured last week. This price allows for a small profit for Indian DAP producers under the current subsidy regime.
The Indian fertilizer subsidy budget which runs April-March was reduced overall by 22% (to a total of $21.4 billion for 2023), however the portion allocated to phosphates and potash was reduced by 38%, which puts some severe limitations on Indian phosphate importers in terms of the maximum price they can afford and still breakeven. If this is translated to a breakeven DAP price (with the assumption that import volumes remain the same as previous years), the Indians can afford a maximum of $600/t CFR for DAP. Currently that price sits at $665/t. With India importing about 20% of total traded phosphate, this is likely to add to the downward pressure on phosphates in the coming 3 months. The phos acid contract price will also be under pressure in Q2 because the new subsidy allowance will result in Indian DAP production from imported phos acid to be loss-making at acid prices above $1,000/t.
Trade data for the full 2022 calendar year shows that MAP imports to South Africa were down around 20% at 245,000t compared to just over 300,000t in 2021. This reduction is attributed to demand destruction due to high MAP prices and local producer, Foskor, producing more MAP in 2022 than in 2021.
Potash
The general mood of pessimism in Potash markets remains, as prices in South-East Asia now fall below those of Brazil.
Potash prices remain under pressure as product continues to flow from the sanctioned Belarus and Russian producers. Despite Brazilian potash stocks remaining high, more Belarussian product is reported to be en route to Brazil and renewed price discounts are likely.
The Indian annual potash tender is expected to close by the end of February and market commentators suggest that this will encourage more normal trade to resume. Significant spot trading is thus expected to be quit for the next few weeks until this tender is concluded.
Somewhat surprisingly, Indian buying activity was high this past week – this is surprising in light of the Indian potash price being expected to drop later this month. What is prompting these purchases is the news that the Indian potash subsidy will be cut by 38% from April, so importers have been doing their sums and deciding that there is money procuring at the current price/subsidy combination and selling promptly into the Indian market that is getting short on potash.
South African full-year 2022 import data shows that 355,000t of potash was imported, almost 13% down on the 405,000t imported in 2021. This fall can be blamed on demand destruction as farmers elected to reduce potash application to reduce their inputs bill.
General Market Outlook
Rand losing 70c against the Dollar pushes local fertilizer prices up. Brent crude oil rises on news of Russian plan to cut production.
Brent crude prices eased down to $81/bbl earlier in the week but the Turkish earthquake coupled with the Russian announcement to cut their production caused a price response over the past couple of days. Prices are currently at $86/bbl and still climbing as the weekend approaches The European gas price have drifted downwards this week and dropped through the $17/MMBtu level in the last 24 hours. US natural gas prices remained at $2.5/MMBtu this week.
The Rand lost 4% week-on-week against the dollar due to ever-growing concerns about South Africa’s electricity crisis and some strengthening in the value of the dollar on global currency markets. This devaluation caused our import parity costing of MAP and KCl to rise by almost 4% despite the dollar values being unchanged this week.
In general crop values have not seen any big moves in the last few weeks. CME corn, soya and wheat futures have been broadly stable, although local Safex numbers have seen some reduction despite the rand weakening. The Safex numbers may well see a currency-connected correction up in the next week or so
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