Nitrogen
Indian tender sees Urea prices bottom out, and resurgence in EU gas price giving some price support
The Indian urea tender was finalized this week, with awards being made at $280-285/t delivered to India. This netted back to a Middle East price of $260-265/t which is the lowest price seen since July 2020. On the flipside, gas prices in Europe showed their first increase in 10 weeks which caused some urea traders to react and cover their short positions. This prompt buying pushed the Egyptian urea price up – Egypt is seen as the preferred supply option as the Middle East producers are involved in the Indian tender and Egypt is geographically the nearest supplier to Europe.
There were some interesting and notable dynamics to emerge from the Indian tender. The usual practice is that the Indians open all of the offers and then counter to all participants at the lowest price received. The Indians received around 2.2 million tons of offers against an indicated requirement of 800,000 tons – this counter-offer process normally leads to quite a lot more volume being bought than the Indian target volume. This time however only 600,000 tons accepted the Indian counter-offer, leaving the Indians well-short of their 800,000 ton target. This sends a strong signal that many producers have reached the price point where they are prepared not to sell and to deal with whatever knock-on effects this choice has for their production.
As far as the Indians are concerned, their domestic urea stocks remain at very high levels so there is no issue around the lower tender volume. They will also recognize that the producer pushback has signaled the bottom of the market and they will likely issue another tender in July while prices are still relatively low.
If gas prices continue to rise in Europe and there is some late season urea buying, we may see urea prices begin to strengthen going forward. An Indian tender in July would add momentum to an upturn. Despite all of this, the urea market fundamentals remain pointing towards a substantial over-supply, indicating that any price upturn is likely to be slow.
At a local level, we have seen urea costs decline by 17% or R1,100/t over the past 2 weeks as the falling international price and recovering Rand helped. While market commentators predict that urea prices are likely to remain low for some weeks, we would not be surprised if urea prices rebound towards to $280-300/t Middle East level – our expectation is that this week’s price is probably the low point for 2023.
Ammonium sulphate has been heavily influenced by urea price movements over the past few weeks, with declines of 15-20%. Crystalline amsul is now approaching the $100/t threshold in China and many traders are expecting the Chinese to start baulking at these low prices. The supply-demand fundamentals leave the Chinese in a tight spot because most of their amsul production is a by-product of other chemical process, most of which are really flying because their raw material costs for ammonia and similar chemicals is very low. So it looks like the Chinese have to keep exporting and that means taking whatever price they can get.
The nitrate sector has seen little activity in recent weeks. The Europeans are now complaining that hot, dry weather is hurting CAN demand and prices are drifting down. Ammonium nitrate out of Russia is struggling to find buyers and prices as low as $120/t FOB Russia are now being mentioned. Brazil is the only significant export market for the Russians at present and with urea prices nosediving, even these low AN prices may not be enough to secure sales.
Ammonia markets remain quite subdued with prices remaining at very low levels. The European gas price hike this week has got EU ammonia producers’ and traders’ attention but it has not impacted prices yet. If gas prices remain elevated, EU ammonia producers may elect to throttle back production and look more to imported ammonia, which could support higher prices. In the Middle East and Asia prices are stable in the low to mid-$200s.
Phosphates
Phosphates markets experience slowing sales as buyers wait for further price reductions
Indian buyers have enjoyed falling MAP and DAP prices in recent weeks but are content to wait while the shipping and delivery takes place and see of prices will fall further before they resume buying. The Indians have purchased over 3.3 million tons of phosphates in the 1st half of 2023, raising their total domestic inventory to around 4 million tons.
Suggestions from China are that exporters have already met their phosphate export quotas for Q3 (i.e. sales are now committed). Whether this means the Chinese will slow down on new sales for Q3 is unclear. Many Chinese MAP/DAP producers are reported to have cut their operating rates to 30-40% already.
Brazil MAP prices fell another $20/t this week, with prices generally in the $430-450/t range, although there is talk of prices as low as $420/t being available. The Brazilians have made the most of falling MAP prices and imports for Jan-May are up 27% y-o-y to over 2 million tons so far. The Saudi MAP price has fallen similarly and is now trading around $400/t this week. With shipping rates dropping a few dollars and the Rand’s relatively strengthening, this puts our import parity cost estimate at R8,300-8,400/t ex-Durban.
Questions around the Moroccan phosphates giant, OCP, continue – OCP has been seemingly content to sacrifice sales and production volumes in an effort to slow the global phosphate price decline. At this point in June, we normally expect the majority of June sales to have been agreed by now. OCP has less than 100,000 tons of phosphates sales for June, against an available capacity of 750,000 tons (OCP’s monthly nameplate capacity is more like 1,000,000 t/m, with 2 million t/a new granulation capacity being commissioned in the next few months). The time must be fast approaching where the Moroccans start to pursue greater volumes.
Bangladesh is holding its annual MAP, DAP and TSP tender that usually includes around 600,000t of MAP and DAP out of the 800,000t total. This is a nice chunk of business but it will be pursued by Moroccan, Russian and Chinese volumes, all of which are in huge oversupply. The tender will not be anywhere close to large enough to arrest the current price slide – it will simply be some meaningful volume for whichever producer secures the tender.
The outlook for MAP and DAP prices is unchanged – the price should continue to drift slowly down towards $400/t for most markets by the end of the year.
Potash
World Potash market stunned by Canadian producers agreeing to a price of $307/t for the Chinese annual potash contract
The potash market had given up hope of a Chinese annual contract price being agreed and expected that the Chinese would keep buying on a spot basis as potash prices keep falling. Out the blue, Canpotex, the Canadian Potash Exporters cartel, announced that it had entered into a contract with the Chinese importers to supply potash at $307/t delivered for the rest of the year. This is $283/t down on last year’s Chinese contract price of $590/t. This move deviated from the industry norm of fixing the Chinese contract price no more than $25/t below the SE Asian potash price.
The reasoning given by Canpotex is that they wish to establish a floor price for potash above their marginal cost of production and secure volumes while the market works through the current slump. Of course there is also the strategic move to squeeze out the Russian and Belarussian potash players. Unsurprisingly, Uralkali, the biggest Russian potash producer, immediately rejected the price – although it did warn that it was considering a volume over price tactic, which would accelerate the downturn in potash prices if true.
Predictably potash prices at all the regional benchmarks have fallen this week. The reductions have ranged from $5/t in Brazil to €20/t in Europe, which are smaller than might have been expected in light of the Chinese price move. Most producers are likely holding back in the hope of achieving prices above the Chinese value. As yet, none of the other potash producers have publicly accepted the Chinese contract price.
The South African CFR potash price declined by $20/t in sympathy with international price developments. The stronger Rand helped move the potash price towards the R8,000/t mark in Durban.
General Market Outlook
Rand shows steady recovery from recent Lows. Energy prices are broadly stable and International crop prices have strengthened moderately.
Brent crude oil has remained range-bound in the mid-$70s per barrel, starting the week at $72/and closing at just under $76/bbl. Oil prices have been pushed around by differing macro-economic signals from the major world economies. Firstly China’s lower than expected inflation has opened the way for the Chinese central bank to lower interest rates and possibly inject additional funds into their economy, which would likely stimulate oil demand and raise prices. On Wednesday the US Fed indicated that it may pursue further interest rate hikes, which had the opposite effect on oil demand and prices.
Gas markets in Europe this week saw the unwelcome rise in the TTF gas price, lifting by 50% from below $8/MMBtu 10 days ago to trade at over $12/MMBtu currently. This trend has been driven by concerns over possible gas supply shortages later in the year and the reduction in LNG cargoes being directed to Europe because prices of below $8/MMBtu made Europe an unattractive destination. In the US gas prices have risen from $2.2/MMBtu to $2.6/MMBtu.
The Rand continues to recover slowly from its horror show versus the Dollar 2 weeks ago. This week saw the Rand regaining 3% and about 8% since the low point at the beginning of the month.
Crop prices have been swinging up and down as various drivers have been shifting. The exchange rate is an obvious one that has offset some of the falls in international prices. US crop conditions have been deteriorating according to the USDA, which has supported US prices for maize, soya and wheat in the past few weeks.
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