Nitrogen
Nitrogen markets stable overall this week but there still appears to be more downward pressure on prices in the coming weeks
Trading activity in the Urea market was very limited this week. Producers and traders with long positions were bullish on prices after the $30/t upward tick in prices over the last 3 weeks but buyers are well-aware that urea supply far exceeds demand and they can play the waiting game secure in the knowledge that product is available should they need it. Urea analysts are suggesting urea prices could be firm for the next few weeks until the next Indian urea tender comes out (which is expected to put severe downward pressure on the price) – we simply don’t see there being much support for prices currently. It will only take one producer to accept a $20/t discount to move a cargo and prices will come tumbling down.
The only region to see much buying activity was the USA, where trading of physical barges saw the price dropping by over $50/t. The spike up in American prices is clearly over and now suppliers sitting on stock positions are acting swiftly to find buyers before the river closure blocks product movement into the Corn Belt for a few weeks.
Traders are conscious of the impact of increased Chinese urea exports on the global supply-demand balance and the resulting downward pressure on prices. Local Chinese demand for urea is declining day by day, leaving increasing volumes of urea to be directed toward exports.
Ammonium sulphate prices in China were stable this week, although the price range (between high and low prices) narrowed, which usually suggests an equilibrium between supply and demand. Trading activity in amsul was reported to be quiet in comparison to recent weeks but there are a number of buyers making enquiries. With the European planting season in full swing and Latin American buyers starting to make early enquiries, amsul trading volumes are expected to ramp up in the coming weeks. Prices are unlikely to shift significantly in any direction, unless something major happens with the urea price.
Spring application activity in Europe has been driving consumption of all nitrogen fertilizers, especially Ammonium nitrate. CAN sales and consumption are reported to be very strong at present – it seems that farmers/buyers have had enough of waiting and are happy enough with CAN prices at current levels. Expectations are that ammonium nitrate prices will remain stable while urea stays at its current levels.
Ammonia prices didn’t move much this week but are expected to come under downward pressure very soon as Russian major, EuroChem, has figured out a way to export substantial volumes out of the Baltic. With the ammonia supply-demand balance being very delicately poised, this increase in supply into the market will swing the balance into oversupply, and prices will respond by falling.
Phosphates
US Phosphates price sees massive collapse this week and drags global phosphates prices down. The outlook for phosphates prices continues to be negative/down
The American fertilizer bubble that was caused by restrictions to the river system that is the key transport route for fertilizer to move from production and imports points on the US Gulf coast into the Corn Belt has now burst. DAP in the USA plummeted by almost $200/t this week as buying interest dried up and traders sitting on positions had minimal time to find buyers before the product remains stuck at the coast due to the river closure due to upstream flooding as the snow melts. While the price drop is enormous, it does bring the US DAP price in line with other regional benchmarks.
MAP prices fell in all regional markets as the negative sentiment of the US price decline spread. The Brazilian MAP price dropped $10-15/t due to high stock levels and expectations of further price falls to come. This dragged the Saudi MAP price down dramatically, with the Saudi benchmark falling $50/t to $520/t fob. The Saudi price forms the basis of our South African import costing, thus our local numbers has fallen almost 9% (or R1,000/t) this week
The Q2 Indian phos acid contract price was settled across suppliers at $970/t CFR, in line with the first deal report on last week.
To give some context on phosphate supply-demand fundamentals and how these weigh on the price outlook, it was reported this week that the world’s largest producer, OCP from Morocco, is operating at 55% capacity utilization and that is with a capacity base of 15 million tons p.a. When we look at other major phosphates producers around the world, the picture of surplus supply becomes even more eye-opening:
- In round numbers, the Moroccans alone have more than 500,000t of phosphates capacity available per month that is not being used currently. The only reason they are holding back is to try and support the overall phosphates price, especially the phos acid price where they have a huge market share and make much more money than on granular phosphates.
- Add to this the Russian capacity which is stuck with the sanctions and is also operating at fairly low rates. The surplus Russian capacity can probably be ignored because they have largely saturated the markets they can supply under sanction and can’t sell any more product. But if the sanctions fell away, then more Russian phosphates would hit the market.
- The Chinese are now returning to phosphate exports with a government quota of around 5 million t for 2023 (or 400,000t/month if they export evenly). China’s phosphate capacity is operating at around 50% currently, although the export quota will help increase that utilization rate, the Chinese still have plenty of spare capacity available.
- Ma’aden (the lowest cost producer of MAP/DAP) has been struggling to sell its full monthly production for the past 3-4 months, and they are only producing at 80% of their 500,000 t/m capacity. They also have their 3rd phase of 3 million t/y due to start commissioning later this year. How long Ma’aden will play the game of throttling production to support prices rather than producing at full capacity is unknown. But it would seem probable that they will want to chase volumes at some stage safe in the knowledge that they will be profitable irrespective of where the price may go.
Therefore there ss a comfortable 1 million tons per month of idle mostly-low cost capacity (500kt Morocco + 400kt China exports +100kt Saudi) of which the 400kt Chinese volume is almost certain to hit the market soon. The annual traded phosphate market is around 31 million tons (call it 2.6 million tons per month if trade happens equally across the year). Adding any or all of these volumes will have a massive impact on the global supply-demand balance and therefore downwards pressure on price.
Add on top of this the downward momentum of ammonia and sulphur prices (i.e. the breakeven cost of production level of MAP and DAP is also falling) and there seem to be some strong pointers to ongoing price declines for MAP and DAP.
Potash
Potash sector remains plagued by lack of demand with traded volumes remaining very low by historical levels
Brazil enjoyed another week of declining potash prices which fell by an average of $5/t to break below $400/t. Some sources suggest that sanctioned Belarus product is available as low as $380/t. European prices remain the highest of all regions and this continues to limit buyer interest.
Potash markets were otherwise very quiet with the only notable news being that two of the American majors announced that they were abandoning plans to restart two of their Canadian potash mines. The restarting of these mines was originally a response to concerns of potash shortages due to the sanctions on Russia and Belarus. As the anticipated shortage did not materialize and potash prices have fallen steadily for the past 6 months, these companies decided not increase their production via restarting these mines. This underlines the slowness with which the potash industry can ramp up production if all existing mines are operating at capacity.
General Market Outlook
US Interest Rates hiked to 16-year highs, putting pressure on commodity and energy prices.
Recession fears continue to impact on energy prices. This week saw Brent crude oil keep sliding to bottom out $72.5/bbl on Thursday. Today saw something of a recovery to reach above $74/bbl. This is the lowest oil has been since November 2021. The US Federal Reserve went ahead with its expected interest rate hike, raising US interest rates to 5.25% in its ongoing attempts to manage rising inflation. This is the highest interest rate seen in the USA in 16 years.
The European TTF gas price resumed its downward trajectory, dropping around $1/MMBtu on its way down to $11.95/MMBtu. US natural gas price also eased downwards moderately from $2.3/MMBtu to close the week at $2,1/MMBtu.
This week saw the blood bath on international agricultural commodities pull through Safex. Week-on-week, local maize prices have fallen by around 5.5%, soya fell 4% and sunflower and wheat fell by 3%. South African yellow maize is now sitting at more than R1,000/t below export parity – which is a situation that seems unlikely to persist for long as it creates the opportunity to export and make a healthy margin.
Latest Direct Hedge quotes for urea and MAP swaps in USD:
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