Nitrogen
Urea producers resign themselves to lowering prices as the oversupply situation worsens; dragging all Nitrogen values down
Urea producers and sellers are now openly admitting that lower prices are inevitable. While there will be the odd spike in demand, the overall supply-demand balance is heavily tilted towards supply. The next Indian tender is unlikely to emerge until mid-Q2 and Europe is showing signs of its seasonal demand downturn already starting.
What will be interesting to track is the fulfillment of the 3 March Indian tender – the Indians gave an unusually long delivery window, to June 2023, which means that the successful suppliers could play around with the timing of their deliveries to India. Normally the Indians specify delivery within 6 weeks of the tender award. The general feeling amongst successful bidders was that they would balance their sales between the Indian tender and spot enquiries and use this to try and support spot prices. As it’s turned out, spot sales have been largely absent, so these producers are left with only their Indian tender volumes as an outlet. By May and June, urea producers are going to be working very hard to find a home for their product.
US prices dropped $15/t and the Middle East fob value dropped by $5/t this week to break through the $300/t level. If we take US prices and net them back to a Middle East equivalent, this would put Middle East prices at $270/t. 15 months ago in December 2022, urea prices were averaging $955/t and we were bracing ourselves for it to hit $1,000. Middle Eastern producers are putting on a brave face and indicating that they have adequate sales for April, however a review of their shipping lineups makes it clear that all of them have significant unsold capacity. We would expect that some producers are already starting to cut back on production to manage their inventory build-up.
May is usually even quieter than April on the sales front and odds are that urea prices will be under enormous pressure by then. In terms of market fundamentals and considering historical price trends, we would suggest that late-April or May would be the optimal time to fix urea prices for the majority of your urea needs for the upcoming season.
Ammonium sulphate demand remains a challenges for producers and traders, with urea setting a low benchmark for nitrogen values and amsul buyers proving to be elusive. Amsul prices slide down around $5/t this week as the downturn carries on.
Ammonium nitrate are being adjusted down on a weekly basis as AN producers are traders are anxious to manage the premium of AN versus urea, and avoid encouraging any urea sales that in turn might stimulate further urea imports. Sales of AN remain extremely slow across Europe as wet, cold weather has halted applications. Expectations are for AN demand to spike after Easter as spring applications get fully underway. Whether this spike is enough to reverse the price direction is doubtful, especially as urea remains a constant threat as a substitute to AN.
The main news in the Ammonia market was the confirmation of the Tampa CFR contract price being cut by $155/t down to $435/t. The Middle East benchmark price declined by $15/t to $370/t FOB and ammonia is being offered in Europe at $400/t delivered, with no buyer interest. The weak ammonium nitrate market and falling urea prices are making it difficult for ammonia sellers to find committed buyers. Ammonia prices are also under pressure in Asia.
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Phosphates
Ammonium Phosphates see a price slump this week, led by India. The Q2 outlook for prices points to further declines.
DAP prices in particular saw a big reduction of up to $40/t this week as an Indian deal for Russian product pulled the market down. This dragged the Baltic and Black Sea DAP prices down by $35/t. Strong DAP production following lower input costs for sulphur, ammonia and phos rock are raising concerns of oversupply during Q2, which will keep prices headed down.
With Q2 starting, the Indian quarterly phos acid contract price is back in the gossip columns. With Indian DAP prices having fallen $120/t during Q1 and Indian subsidies for domestic DAP production being reduced by almost 40% from the end of April, Indian DAP producers (who use imported phos acid) will be seeking hefty reduction in the phos acid contract price to ensure their profitability.
MAP prices declined by $5-20/t this week across the various benchmark locations. The Moroccan MAP price was the biggest faller as it lost $20/t. The Saudi quote went down $8/t to touch on $580/t FOB. The Brazilian MAP price shed a few dollars too as it currently trades at $625/t.
In trade into the Southern African region, Saudi mega-producer Ma’aden concluded a sale of 40,000t of MAP and DAP to its local subsidiary Meridian. As Ma’aden has 20-25% of its March production unsold and this sale is out of season for East Africa, it is likely that this transaction was made at a discount to market price.
Potash
Potash market remains bearish as the Brazilian price drops by $10/t and all other regional markets follow it down
The biggest potash price mover this week as Europe, where the price dropped €40/t to fall below €600/t. Europe continues to be the most expensive potash location with the price still having some way to go to align with most other markets. In Dollar terms Europe is sitting at $625/t compared to other major markets at $400-450/t. This differential is explained by Europe being the most stringent observer of sanctions against Russian and Belarussian potash, whereas most other regions are receiving deliveries of discounted sanctioned product.
A number of small Asian potash tenders were issued this week – the biggest tender was 150-200,000t that fixed at $450/t CFR. The other tenders were all much smaller in the 20,000t range. It is clear that buyers in this region are purchasing on a hand to mouth basis, on the assumption that prices are still coming down and they shouldn’t commit on all of their requirements just yet.
General Market Outlook
Macroeconomic indicators remain mixed as fears of US recession increase, while oil markets are upset by unrest in Iraq.
An escalating conflict in Iraq has caused crude oil prices to strengthen this week. The Brent crude price rose from $76/bbl to trade at $78/bbl. The European TTF gas prices continue to hover at the $13/MMBtu level. While this is a much more palatable level than the $95/MMBtu seen 6 months ago, falling ammonia prices in Europe are causing producers to idle production or operate at a loss. In the US Henry Hub natural gas prices stayed steady at $2.1/MMBtu this week.
After last week’s bloodbath on crop values, this week saw some stabilization and recovery. News of the latest attempt to export trapped Ukraine grain breaking down added some support to prices. The strengthening of the Rand again this week is likely to have a depressing influence on the Safex prices but this effect has not come through yet.
The latest US Federal Reserve’s interest rate increase has raised the probability of a US recession. There are a number of factors pointing towards the Dollar weakening against other currencies. Should the Dollar weaken versus the Rand in the 2nd half of 2023, this may have some negative consequences for farm economics unless growers are actively managing their exposure to the Dollar. How this could play out is that farming inputs are purchased while the Dollar is still strong (i.e. the Rand cost of those inputs is relatively high) – if the Dollar does weaken (or the Rand strengthens) then this would impact crop values in Rands, which would decrease and hurt farm revenue. So the grower is exposed to the risk of a double whammy where inputs costs are high and crop values decline at harvest time, purely because of exchange rate movements.
Latest Direct Hedge quotes for urea and MAP swaps in USD:
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