Nitrogen
Urea prices keep drifting down, with the oversupply position continuing to grow. The only short-term flag that might support prices is speculation about an Indian tender being brought forward
The market ‘bears’ remain out in force regarding urea as prices fell between $5-35/t in the major benchmark regions. The Middle East fob price shed another $12.5/t and is fast approaching the $330/t mark. The Brazilian urea price dropped $35/t to sit at $315/t this week.
The biggest talking point in urea circles this week was the rumour of the Indian tender being launched in the coming weeks instead of late March. This was popular with producers who have had nothing positive to cling to in the past few months. We would speculate that if this tender is indeed issued, it will be due to the Indians taking the view that urea prices are close to the bottom of the current downturn. The Indian supply-demand balance at a country level indicates that they have ample stocks should they wish to wait a month or 2 before their next big purchase.
The US is over-supplied for its spring season with all the cargoes that have been routed their over the past month. US domestic production has also been favourable with gas prices of $2.5/MMBtu making urea production highly profitable even with urea prices approaching $300/t. The European spring season has disappointed traders as local urea inventories are fairly high and sales have been slow, leaving importers struggling to find customers for new cargoes.
Ammonium sulphate prices ticked down slowly this week, particularly for granular product which is having to compete with cheap urea. The slow market for nitrogen in Europe is likely to sustain downwards pressure on amsul prices for the next month at least. Ammonium nitrate faced similar issues to amsul and prices declined across all markets. European CAN dropped $30/t this week as sellers try to encourage buyer interest.
With ammonia buyers proving to be elusive, producers slashed prices in an attempt to create some sales activity. The Middle East price was cut by $75/t to $625/t this week – with no buyers biting yet. The lack of demand for ammonia is evident in all regional markets and prices are expected to continue falling.
To give some context of the current urea price level, the 5-year average for the Middle East urea benchmark is $397/t. The average Brent crude oil price over the same 5 year period is just under $70/bbl – the urea price strongly correlates to the crude oil price over longer periods. Thus urea is currently sitting $65/t, or 16%, below its 5 year average, while the Brent price is presently $15/bbl (21%) above its 5 year average. This points to Middle East urea being under-valued compared to both its own 5 year average price and versus the 5 year average crude oil price. This points to the Middle East urea price currently trading at a lower value than the fundamentals suggest. The analysis is dependent on the time-frame selected (i.e. a 2 year period or 10 year period would show somewhat different numbers). Therefore the conclusions being drawn here are intended to be an indication of likely urea price direction in the next 6-12 months, rather than a forecast.
Phosphates
Phosphates price reductions persisted this week, as lower ammonia inputs costs point to further price declines.
DAP prices dropped around $10/t in most regions this week with the lack of demand continuing to be the primary reason. Phosphate producers are getting increasingly jittery about the rising prospect of China opening up phosphate exports in April/May once the Chinese domestic spring season has been supplied. An easing of the Chinese export restrictions that have been in place for more than a year will increase phosphates availability and will pressure prices down.
Brazilian MAP prices have been stable for the last month due to strong demand for their Safrinha season. Local traders did expect prices to rise as sales have been good – with Safrinha demand coming to a close, it seems inevitable that MAP prices will start to fall again in Brazil..
Phosphate prices in North America and Europe have been flat for the past few weeks but are now coming under pressure as the spring season is kicking in and buyers point to much lower MAP and DAP prices available in other markets. Phosphates traders will be aware of the recent urea example where it’s been a buyers’ market and sellers that have been too greedy ended up struggling to move their product.
Potash
Potash prices continue their descent this week, as Brazilian price threaten to drop below $500/t.
The gloomy Potash sentiment has now spread even to markets where prices were previously stable (with the exception of South Africa, where the price is still being quoted unchanged at $700/t for the 10th week). The Brazilian Safrinha season, which consumes relatively more P and K, than the primary planting season, has seen strong domestic sales of potash. This in turn provided some support for Brazilian potash prices – with potash consumption very low in most other regions, the big exporters focused on Brazil. The big import lineup for Q1 of this year is now pressuring Brazilian potash prices back down as stock levels ramp up.
Europe saw €25-50/t discounts in potash prices this week as its price starts to move closer to other regional price levels. Producers are keen to capture any sales opportunities as the European spring season kicks off in the next few weeks.
Indications for local prices point to a big downwards correction when the first imports for 2023 are booked – prices below $600/t cfr are anticipated, which is a price level last seen in August 2021.
General Market Outlook
Rand softening against the Dollar again this week hurts local prices.
The oil price enjoyed some rare stability this week as the Brent crude price ends the week around at the same $85/bbl level that it was a week ago. The European TTF gas price dropped as low as $16/MMBtu earlier this week but has risen back to $17/MMBtu level today. US natural gas prices reached a 3 year low falling to $2.3/MMBtu this week. The low US gas prices are good news for US nitrogen producers.
Another week of substantial declines for the Rand, climbing above R18 to the Dollar. As always with the weaker Rand, this devaluation increased import parity costs of fertilizer. The currency movement wiped out about half of the reduction seen in the dollar price of urea, while MAP and potash prices rose by 2.2% despite being unchanged in Dollar terms.
Cereals and oilseeds had a generally quiet week with values rising very modestly for most crops. The one exception was Safex soya, which enjoyed a hefty 5.2% hike week-on-week.
Latest Direct Hedge quotes for urea and MAP swaps in USD:
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