Cost per kilogram of nutrient (R/kg):

Nitrogen

Urea trading activity markedly quieter this week but prices keep edging up

Urea suppliers maintain their optimism around ongoing price increases for the near term, on the basis that sales have been good and their inventories are fairly low. Buyers on the other hand are avoiding purchases if they can.

The current Indian tender, which has not yet been closed, continues lead the urea headlines with a lot of speculation around what prices will be offered and how much product the Indians will succeed in securing. If the urea market really is as tight as producers are saying, then there may not be the full 1 million tons that the Indians are aiming for being offered on the tender. The more aggressive the Indians are in low-balling their inevitable counter-offer, the fewer tons they’re likely to get. There is also the question of where the next big sale is for producers who pass on the Indian tender – the Southern Hemisphere (South America and Australia anyway – Southern Africa has been very slow) buying for the most part has been good but the importing window will end in a couple of months. Unless the Northern Hemisphere buying starts fairly early, there could be a bit of a lull in demand around September-October. If urea prices keep rocketing up, then the likelihood of a buying slow down, or declining demand, increases.

Other regional markets in the Northern Hemisphere such as Europe and North America, have seen retail buying interest taper off this week. This is as much due to the lateness of the summer season now as it is due to the recent urea price spike. Egypt has also seen a drop in sales activity this week – mostly being blamed on lack of product due to production outages in the country, although Egyptian urea sales volumes have been low for a few weeks now, despite the hype of sky-rocketing prices.

Urea prices have kept rising in Brazil but buyers are resisting hard now and sales volumes have dipper this week. Brazil did gain $20-25/t this week to approach the $450/t level. With the import window there closing in a few weeks and high local inventories after an intense import lineup already this year, sellers will be wary about being too aggressive on pricing and lose out on the last sales for the upcoming summer season.

Of interest to the braver local buyers, Iranian urea sales were strong this week with at least 100,000t being sold. Iranian prices are around $380-385/t fob Iran, so $60/t below the latest Middle East prices. With limited availability from the Middle East currently and local buyers getting anxious about securing product given the lateness in the import season, a few more Iranian cargoes coming to South Africa would be no surprise.

This week saw Ammonium sulphate price increases kick into high gear with Chinese crystalline product jumping by the best part of $50/t and granular amsul gaining $25/t. Prices out of China are now sitting around the $200/t mark. Amsul sales have been driven by purchases from South East Asia, Europe and particularly Brazil. With the weak Rand this week, Chinese granular amsul has climbed from R3,800/t to R4,500/t on an import parity basis ex-Durban. South African amsul imports year-to-date are less than half of last year – with prices now spiking, the opportunity for cost-effective amsul buying has been missed for this year.

The current surge in nitrogen values has encouraged European Ammonium nitrate and CAN producers to lift their prices aggressively. It is very late in the European summer to be pushing prices up but with urea and amsul prices rising so much, AN/CAN sellers have followed suit. Prices have been increased between 10-15% this week.

Ammonia prices continue to lag behind the other nitrogen products. The market sentiment suggests there is support for higher prices but so far upward adjustments are small. Given what has been going on in the rest of the sector, it seems likely that when the ammonia price shifts, it will be a big jump. Ammonium phosphate prices leaping up this week will also add support to higher ammonia prices going forward. This week saw ammonia prices move up $5-10/t across most of the benchmark locations, with ammonia sitting in the low $300s/t.

 

Phosphates

Phosphates prices keep strengthening as demand improves across most regions and supply tightness emerges from China

Somewhat unexpectedly, Indian DAP priced firmed this week as availability of product from China tightened. The increase in the Indian price was small but this was the first upward movement in this key benchmark price in more than 9 months. Chinese phosphate exports remain a key flag for phosphate prices in general – concerns over reductions in Chinese exports are stimulating prices but as yet no meaningful price increases have been seen for Chinese product.

There are some maintenance turnarounds expected in some Tunisian and Russian productions sites, which is usual for this time of year – these producers are getting ready for the Northern Hemisphere demand in Q4.

Morocco has reported some decent sales volumes for September to India, with prices not yet confirmed but rumoured to be above $500/t CFR India. If true, this suggests a DAP price increase of more than $50/t in the next month. Morocco has also sold upwards of 150,000 tons of phosphates to Europe.

In terms of demand this week, Brazil leads the pack with MAP prices rising $20-25/t to approach $500/t CFR Brazil. Pakistan which has been quiet in phosphate markets this year but is historically a big importer, returned to the market this week – exact volumes are unknown but this is a positive sign of demand returning to previous levels.

Trade data for the 1^st half of 2023 shows that MAP imports into SA were less than half of the same period in 2022. Foskor’s production will cover some of this shortfall but it leaves the local market very vulnerable if Foskor should have production issues. Even if Foskor runs very well, the phosphate market looks short of product currently.

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Potash

Potash prices broadly stable around the world as the continuation of the Canadian strike keeps supply constrained
 

The potash market quietened down this week with no real price developments in the major regions. Canadian news seems to be the main source of support for prices – the Vancouver port strike is stropping Canadian exports and this makes for a good story to support potash prices. In terms of pure market fundamentals, the cutting back of Canadian potash production is much more significant in potash pricing going forward. In a nutshell, the Canadian producers have taken it upon themselves to cut back on output in an attempt to tighten the global potash supply-demand balance and get prices moving up (Or at least stop the decline).

Potash sales into Brazil were strong this week, which was expected given that only a few weeks remain for imports to reach farms. The Brazilian price rose by $5/t and now sits just above $350/t CFR.  

The Durban granular KCl price gained another $7.5/ton this week as the local market is plagued by a shortage of product. Trade data for the 1^st half of the year indicates that around 80,000t have been imported so far, versus more than 120,000t last year H1 and more than 170,000t in the 1^st half of 2021.

 

General Market Outlook 

US Credit rating downgrade caused chaos on currency markets and Rand plummeted against the Dollar.

Crude oil prices bounced all over this week as Fitch’s downgrade of US debt rating caused havoc on financial and commodity markets. Brent crude closed the week where it began, at $84/bbl. The European gas prices also caused some jitters as it threatened to race up, however the EU TTF price seems to have settled at around $9/MMBtu. US natural gas prices trended downwards moderately this week to $2.5/MMBtu.

The Rand was the most impactful macro-economic driver this week – the US credit rating downgrade caused investors to abandon risky currencies and rush for safe-havens. The Rand plummeted 5% from R17.8 a week ago to sit at R18.7 to the Dollar currently. This devaluation is hurting all imported agri-inputs, with inflating fertilizer prices being a real concern for farmers right now.

As yet, Safex grain and oil-seed prices haven’t any of the benefit of the weaker Rand. The international CME prices suggest that further pain is in store for local farmers: CME maize dropped almost 10% on the week, soya almost 7% and wheat a massive 12%. These markets are seeing excessive levels of volatility as conflicting drivers seem to emerge week after week – there was the collapse of the Russia:Ukraine grain deal that sent prices racing up, prior to that there were improved yield forecasts for Canadian wheat and Brazilian soya that caused prices to soften – now the US credit downgrade causing commodity markets in general to decline.

Latest Direct Hedge quotes for urea and MAP Swaps in USD:

The Urea Swaps market acted totally contrary to the physical urea market, with the quotes giving up all the gains they had made last week. The forward prices have now retreated below $400/t in most cases, which should set the red lights flashing. The Arab Gulf physical urea prices are already well above $400/t in the 1^st week of August, so for the August futures price to hold at $390-410, physical prices will need to settle very quickly. The Forward prices for September, October and November are currently pointing to sub-$400/t – this aligns with our comment in the urea section above that if physical urea prices get overheated and run up too far too quickly, then a downward correction is probable.

Where does this leave Southern African urea buyers, most of whom are well-short of their requirements for the coming season? Those that covered early will of course be smiling because recent price developments have put them well into the money. Those that are stampeding now and distress buying are apparently running the risk of a late season price correction that could cost them money come October/November. Do buyers that are currently short have a choice not to buy? Probably not because there is little time to source product ahead of the season– but we would caution against taking long positions as there are a few flags that prices could drop at some point.

The Brazilian MAP market clearly has some price optimism, as the Swaps quotes above indicate. The Brazilian MAP physical price has not yet broken through the $500/t level but the forward market is pricing in some further increases. Does this suggest that South African MAP buyers should anticipate further rises in the local price? Our view is yes – and the Rand weakness may magnify MAP price increases in the coming weeks.

If you would like to discuss these fertilizer price trends in more detail, or discuss other fertilizer products not addressed in this report, we would love to hear from you. We would also be happy to discuss your fertilizer procurement needs with you.