Nitrogen
US Urea market picks up momentum and lifts urea prices. All other Nitrogen prices keep falling on weak demand
US Urea barge sales saw a lot of activity this week as US domestic sales sprang to life after Easter. This encouraged traders active in North America to start buying cargos to refill their positions. This buying activity supported prices in a number of urea-producing regions. The Middle East urea price rebounded to $300/t fob after hitting 2 year lows last week. The Brazilian price also rose $15/t in sympathy on this development.
While the spike in short-term demand is being welcomed by producers, the underlying fundamentals remain a concern. Once this US spring buying is satisfied, whatever demand remains from Europe, South America and East Asia is unlikely to be enough to support firmer prices. The big question is whether prices will then fall back below $300/t or will they hold in the low $300s?
We also expect that Southern Hemisphere buyers will be watching the market very closely in anticipation of fixing their urea purchases as soon as urea prices show signs of a sustained upward move. With urea hovering at the $300/t level, there is relatively little downside risk to taking a position on urea now – the main negative to buying now is the cost of working capital in holding urea until the summer rainfall season starts.
Latest indications from India regarding their domestic urea availability show very high stock levels, in fact Indian urea stocks are projected to sit at over 7 million tons by the end of May, which includes projected domestic production and confirmed imports of contract and tender volumes. Putting this into context India imports around 10 million tons of urea p.a. thus the Indians will not be under much pressure to launch their next urea tender. As a result, India is expected to only hold one urea tender for the whole of Q2, and this will probably happen towards June.
The recent slump in urea prices is flowing though into Ammonium sulphate values. Amsul prices have dropped a good $25/t in the last couple of weeks. Chinese product landed in Durban currently costs around $200/t CFR for granular product and $180/t CFR for crystalline product (note that this is before any duties, discharging costs or margins). This is less than half of where prices were a year ago. The amsul market is said to be struggling with high levels of supply out of China and very little demand in most of the traditional markets.
Ammonium nitrate prices have kept ticking downwards over the past few weeks, pressured by factors such as plummeting urea values, low demand in Europe and a reduction in production costs. CAN demand is improving moderately across Europe as spring application is underway but at €280/t it is a tough sell versus urea. Russian AN, which is of course subject to sanctions from most countries, saw a huge cut of $50/t this week, dropping Russian FOB values to well below $200/t. While fert-grade AN (33% N) is not used in South Africa, it is a popular product in Zimbabwe and Zambia and we may well see some Russian cargoes destined for these markets at these prices.
The Ammonia sector is seeing something of a split along East and West lines. The Western Hemisphere covering Europe, Africa and the Americas is fairly stable at present with ammonia prices largely unchanged at $400-450/t level. In the Asian market the demand for ammonia remains weak and prices are under pressure as a consequence. The Middle East price was pressured downwards by $45/t this week as prices in the East Asian market fell by $55/t. The Middle East ammonia price is sitting at $285/t. Ammonia traders are talking up the rebound in urea prices in the hope that this will drag ammonia values up too.
Phosphates
The surge in US spring demand helps Phosphates rise in that market. Most other regions see Phosphates prices still falling.
DAP prices leapt over $50/t in the US this week as the same wave of US buying that drove urea also applied to phosphates. US DAP prices are touching on $700/t, which is $150/t above the Indian level and $100/t more than importers in Brazil are paying. Other regions saw prices falling $10-15/t as a result of high stock levels and lower production costs. The new, reduced subsidy rates in India kick in from 1 May which also is keeping a lid on prices.
With the outlook for phosphates prices looking so gloomy, the Chinese have agreed amongst themselves to try and hold their prices above $550/t as they restart exports into the global market. The impact of China’s return to exporting will certainly be increased availability of phosphates and substantial downward pressure on prices.
MAP prices saw mixed movements this week as the Saudi benchmark rose by $15/t although it must be noted that this increase was driven by one trade destined for the booming US market done at $610/t FOB, while other MAP transactions were closer to $550/t. Brazil saw MAP prices drop below $600/t on the back of record MAP imports for Q1, more than double those of Q1 2022.
The outlook for phosphates prices suggests ongoing prices declines. Short-lived localized rebounds such as the American one cannot be discounted but the majority of fundamentals point to oversupply and reducing production costs, which favour lower prices.
Potash
Indian annual Potash contract price is finally settled, giving Potash players hope of some price stability
The Indians agreed an annual contract price of $422/t CFR for standard grade potash. This is almost $170/t lower than the 2022 contract price of $590/t. The Indian price is in line with prevailing potash prices in South East Asia and producers hope that this will set a global floor price for the rest of the year. The Indians will need to buy huge volumes to tighten up the global supply-demand balance in order for potash to stabilize at this level. A lot of potash trading activity has been on hold pending the outcome of these negotiations, so potash sellers are optimistic that sales will pick up sharply on this news.
The Chinese have delayed their contract price negotiations until July due to ample potash stocks in country and their expectations of even lower prices being possible. It therefore seems likely that any price stability resulting form the Indian contract settlement will be shortlived until the Chinese test this price.
Potash sales were active this week, with buyers using the Indian contract price as a target. Spot prices in Brazil, South East Asia and Europe were all down as a result. In Brazil the price fell by $20/t to touch on $420/t – it is hard to believe that the Brazilian price has dropped by $750/t from its peak at $1,180/t a year ago. The global price decreases have caused the South African import price to drop by $15/t this week, to sit at just over $500/t CFR Durban now.
General Market Outlook
Rapidly recovering Crude Oil prices led by OPEC production cutbacks raise fears of recession.
Brent crude posted its 4th consecutive week of gains as it trades just below $87/bbl after briefly touching $87.5/bbl midweek. The oil price recovery has been caused by the OPEC+ producer deciding to cut back on their daily oil production. The rebound in oil prices is bad news for Western economies that were just starting to believe that recession might be avoided this year. Higher oil prices, particularly if they’re sustained for the rest of the year, will sustain inflation that was beginning to respond to central bank interest rate hikes. Higher oil prices support higher fertilizer prices (most commodities track crude oil prices in fact), while a recession will negatively impact consumers, hurting food demand and therefore food prices. Higher input costs and lower food prices is not a combination our growers wish to see.
European gas prices have remained stable just beneath $14/MMBtu. US natural gas prices below $2.0/MMBtu this week and presently trade at $1.99/MMBtu, its lowest value since July 2020.
The Rand returned to the R18 level versus the Dollar, after hitting R18.25 last week. While international money markets hold that the dollar may weaken against other currencies later this year, the Rand seems set to struggle with the burden of local issues weighing it down against the dollar.
Latest Direct Hedge quotes for urea and MAP swaps in USD:
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