Nitrogen
Urea rebounds sharply as recent sales give producers the upper hand in lifting prices
To the surprise of much of the market, urea prices jumped up significantly at all benchmark points around the world. The price move is being explained as producers being in a more comfortable position after improved sales in the past few weeks and are therefore prepared to push their luck for higher prices as they are less concerned about losing sales volume. We are not so sure that recent sales have been remotely high enough to tighten a very oversupplied market to the extent that an 11% price hike is justified. Be that as it may, urea remains a highly volatile commodity that can respond quickly to market sentiment and this week’s price is further evidence of that tendency.
The Middle East saw prices escalate by almost $30/t this week, with a large range between the high and low prices once again being evident. Egypt has also seen large price increases this week on the back of spot sales into Europe. Both Egypt and the Middle East have entered into the Eid al-Adha holiday in the latter part of the week, so the volume of trade/sales has been limited. Again, this causes us to speculate on whether the urea market has really turned as dramatically as the published prices suggest or whether the price movement is based on a small volume of trade that might not accurately reflect the real state of the market.
One region where the supply-demand balance has tightened materially is in South East Asia where urea sales have been fairly strong and a number of production facilities are down for various reasons. This is supporting increased import volumes, which Middle Eastern sellers have targeted and achieved their highest netback prices of the week. What is not clear is why China, which is the natural supplier from a geographic perspective, is not supplying much urea despite China having ample stocks and actively looking for buyers. Chinese product would land in SE Asia at much lower prices than the transactions reported this week.
Another contributor to positive price sentiment was the rumour of the next Indian urea tender pointing to a 1 million ton tender in mid-July.
The Brazilian urea price moved up by $25/t to $315/t at the high end of the range but this price was reported to be limited to one buyer who had an urgent requirement and most trades were done nearer $300/t.
With the Middle East price rising by $30/t and the Rand slipping by more than 1% against the dollar this week, the local import parity cost of urea rose by 11% to bounce back to the R6,500/t range. This should serve as strong encouragement for any local growers that have not yet fixed their urea/nitrogen requirements for the upcoming season to do so promptly or risk paying considerably higher prices later in the season.
The resurgence in the urea price gave some support to Ammonium sulphate prices which gained around $5/t this week. While by no means shooting the lights out, this small recovery in amsul values ended a 10 week slump in prices. There was increased buyer interest from Brazil ahead of their upcoming summer rainfall season which is giving amsul traders some hope of firmer prices in the coming months.
Unsurprisingly in light of recent higher gas prices, European ammonium nitrate and CAN prices have firmed this week. Urea buying in the region has also boosted nitrogen prices, which is helping EU AN producers achieve higher prices on late season sales.
Ammonia news was dominated by the Tampa contract price being cut by $55/t to $285/t – a price reduction was expected but not to this extent in light of urea prices moving in the opposite direction. This ammonia price is indicative of the usual Northern Hemisphere summer lack of demand.
Phosphates
Phosphate prices go nowhere as most regions see small adjustments. The Q3 Indian phos acid price looks like settling at $850/t
Phosphate markets were broadly stable as a mixture of small price changes were seen across the regions. DAP prices were slightly down in China and India but up in the USA.
As Q3 is about to commence, the Indian quarterly phos acid contract price negotiations are underway. So far one of the players has reported settling on a price of $850/t CFR India, which is $120/t down on the Q2 contract price. Thus far no other sellers or buyers have confirmed pricing although it appears likely that $850/t will be the outcome.
MAP prices were boosted by the $5/t increase seen in Brazil supported by improving demand in the country. This small increase was the first weekly upturn in MAP prices seen in Brazil since the start of the year. The positive sentiment from Brazil pulled through to the Saudi MAP price, which rose by $5/t as well – the Saudi benchmark price remains just below $400/t.
The Bangladeshi tender for 630,000t of various phosphate product was canceled due to zero bidder interest. The Bangladeshi government is over $700 million in arrears from prior tenders and this has led to banks withdrawing any credit facilities and no producers or traders are prepared to take a chance.
As we have mentioned previously, any strengthening in phosphate prices is heavily dependent on the operating rates of the major exporters, particularly the Moroccans and Chinese. Both have been operating at below 50% for some time now – already there are reports of the Chinese upping their production to above 50%. Our view of phosphates bottoming out at the $400/t mark remains – at sustained prices much below this level, a number of producers would likely cut back on production which would tighten the supply-demand balance and support prices.
Potash
Potash prices appear to be stabilizing as regional adjustments take place to align the overall market
As was seen with nitrogen and phosphates in Brazil, the emergence of their summer season buying is supporting all fertilizer prices and Brazilian potash prices rose by $5/t this week. While this is a very small increase, market analysts are pointing to this inflection point as a sign that the market may have hit the bottom.
In South East Asia, the potash price dropped more than $40/t as it adjusted towards the recent Chinese contract price. The SE Asian price is now around $320/t compared to the Chinese contract price of $307/t. Unless there is a major, unexpected disruption in the Asian potash sector, it seems probable that these prices will prevail for the next few months at least.
The Indian renegotiations of their contract price have not been concluded yet but it seems a safe prediction that they will achieve a price somewhere in line with the Chinese value.
The South African import price moved down by $10/t in sympathy with world market prices. With prices still close to $400/t, there appears to be some scope for further reductions for committed buyers. It is a risky game for local buyers to delay purchasing in anticipation of further reductions versus the probability of port congestion and delays in discharging vessels in Durban as Q3 approaches.
General Market Outlook
Energy prices stable this week but the weakening Rand and falling Crop prices are a concern.
After a short dip to $72/bbl midweek, Brent crude oil is closing out the week where it began, at $75/bbl. The OPEC+ group is set to cut oil production but oil demand is also declining on ongoing fears of recession so oil prices remain in the mid-70/bbl range. Gas prices were stable this week, with the EU TTF gas price trading at $11/MMBtu and the US natural gas price $2.7/MMBtu.
The Rand lost 25c to the US Dollar this week, fast approaching R19 to the dollar once again. While Rand weakness is nothing new, the timing is unfortunate as the bulk of agri-inputs are being imported and priced now, meaning that growers are faced with an increasing US Dollar exposure (in other words, if the Rand strengthens closer to harvest time, growers will face reduced profit margins).
In a big reversal, crop futures lost all their gains of last week. CME maize dropped 12% week on week to reach a new low for 2023. Rainy weather in the US overturned concerns of hot weather impacting the current crop and prompted a sell off. Despite the Rand continually weakening, the Safex maize fell by 8% and local maize prices are once again below export parity. The international wheat was also a big loser this week as good yields in North America point to surpluses – this will be of concern to local growers that have winter wheat on the lands.
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