Nitrogen
Urea prices nosedive further this week with drops >5% seen in all regions, presenting an ideal buying opportunity for Southern Hemisphere urea consumers
Discussions around Urea prices at the IFA annual conference were very pessimistic and substantial declines were evident in all the price negotiations. The next Indian tender is being mooted for as soon as next week, not because the Indians urgently require the product but because they anticipate fierce price competition in an otherwise lacklustre market. Expectations are that the Indians will look for 1 million tons under the tender, with Russia and China expected to supply substantial volumes.
The Middle East FOB price fell by almost $25/t on the back of trades into Asia, pushing it below $300/t. This will have the knock-on effect of lowering Asian import prices and the Chinese urea exporters will be forced to adjust their urea prices down in order to compete. The Brazilian price dropped about $15/t to touch on $300/t CFR (delivered), which shows that any of the big exporters such as the Middle East or China will have to drop their prices even further. With very little new business around, other than the next Indian tender, these urea producers will be reluctant to walk away from any opportunities in Brazil.
While the delivered (CFR) cost of urea in Durban dropped by 7%, the Rand hitting all-time lows against the Dollar ate up most of this price reduction. Our import parity cost did decline by around 4% but the weak Rand means urea is barely below R7000/t, compared to its pre-2020 range of R4,000-5,000/t.
The sentiment around Ammonium sulphate has also returned to pessimism this week, with prices falling $5-10/t depending on grade. There are a few amsul tenders in SE Asia floating around but the volumes are quite small and with most other markets seeing nitrogen values falling as a result of the lower urea price, all amsul price indications point to lower prices in coming weeks.
CAN suffered from the general price negativity in the nitrogen sector although some big CAN sellers in Europe have pushed their list price for the product up. This is an interesting move as this will seriously test their customers’ loyalty to nitrates as urea offers a much cheaper substitute. Ammonium nitrate particularly from Russian origin continues to fall as the Northern Hemisphere season has mostly passed. Prices for Russian material are now $125/t FOB Balti, although non-sanctioned AN is trading at around $260/t.
Ammonia prices took a large dip again this week, as lower price in Europe have encouraged local producers to restart and thus demand for ammonia imports have dried up. This has left ammonia exporters with rising stock positions and mounting pressure to sell or consider cutting back production. The Middle East FOB price fell by $40/t down to $215/t FOB, which is a price not seen since May 2020. For the small volume of ammonia imports into South Africa, this price is a welcome opportunity to at least fix a vessel at a competitive price.
Phosphates
Phosphates continue to fall rapidly as increased supply from the major exporters overwhelms whatever demand is present
The IFA conference reported serious pessimism amongst phosphate players with no end in sight for the ongoing price slump. DAP prices fell at all benchmark locations, with most of the blame being put on the Indians, as their new, lower subsidy regime has kicked in. This has pressured Indian importers to aggressively lower their price offers or risk making serious losses on retail sales in India. The ease with which they have achieved lower prices week after week has given encouragement to all other phosphate buyers, who are joining in the discounting war.
Some industry analysts are predicting the Chinese exports of MAP and DAP combined will be close to 7 million tons this year, compared to just 1.2 million tons in 2022. While prices having fallen from $1,000/t to $500/t in the past year or so which will help stimulate some demand, the sheer increase in the Chinese volume is way above any kind of foreseeable demand rebound. There is also the Moroccans to consider as they also wish to push their exports of phosphates up with their production running at dismally low rates.
MAP prices fell by over $30/t in Brazil, due to massive stock levels in-country and the recent tumbling cop values forcing growers to push back hard on input costs. With Brazil and India seeing huge price drops, the Saudi export price shed $40/t to try and keep up with the market. The Brazilian situation is weighing heavily on the fertilizer market in general – fertilizer warehouses are said to “80% full” which while a very broad statement, is also a red flag in terms of Brazilian buying slowing down in the near future. On the demand side, the recent Safrinha season is showing signs of record maize production and grain stores were already largely occupied because of plummeting soya prices and traders electing to store soya rather than keep selling into weakness.
The outlook for phosphates is for prices to just keep falling for the remainder of the year. Commentators are suggesting prices could bottom out around the $400/t mark – most export prices are currently around the $450-460/t FOB level.
Potash
Potash prices join the fertilizer pity party on the back of the IFA Conference
Potash prices experienced some big falls this week, the biggest of which was the €75/t drop in Europe – in fairness the European price has remained higher than all other regions for some months and the downward correction was long overdue. The EU price remains well above all other regions, so further reductions would be no surprise, especially if the rumours of Russian product making an appearance in Europe turn out to be true.
Brazil and SE Asia saw declines to the tune of $15-20/t this week, taking prices into the mid-to-high $300s. In Brazil the drop was ascribed to worsening sentiment about crop prices with a big yield about to be harvested and silos generally very full. In SE Asia concerns of a strengthening EL Nino weather pattern for the remainder of the year impacting agriculture negatively are causing buyers to pull back.
The South African CFR price of $453/t average was unchanged this week but with Brazilian values a good $80/t cheaper, it seems likely that prices will move downward in the coming weeks. The threat of much cheaper Russian product is something that the unsanctioned potash suppliers active in this market will be considering closely.
General Market Outlook
South Africa sees 50 point interest rate hike, and the outlook for recession in the US increases in probability.
Brent crude oil enjoyed its most stable week in some time – with the price peaking at $78/bbl midweek and closing the week just below $77/bbl, which is where it started. The biggest change in the energy sector was seen in the European natural gas market where the price fell sharply by more than 20%, moving from $10/MMBtu to close at $8/MMBtu. US gas prices bounced around a bit during the week, rising to $2.6/MMBtu but closing at $2.2/MMBtu.
The Rand hit new lows against the Dollar yesterday, closing at R19.78/$. This market reaction was caused by the Reserve Bank governor making questionable pronouncements on the Reserve Bank’s approach to further interest rate hikes and its expectation of further currency weakness. This is very troubling for South Africa’s economic prospects with the likelihood of recession growing daily.
CME maize numbers for July rebounded somewhat this week after the plummeting performance in recent weeks, and Safex maize numbers moved slightly up on the news. The other cereals and oilseeds all registered drops this week – perhaps the recent Rand collapse is yet to play through the Safex values and we could see a short term hike up when it does.
Latest Direct Hedge quotes for urea and MAP swaps in USD:
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