Nitrogen
The price downturn has set in solidly on the urea market as all major price benchmarks saw reductions this week. Urea sellers were increasingly aggressive in offering discounts to generate sales volumes. The urea market looks long for the next 4-6 weeks and further price decreases are expected.
Substantial volumes of urea being offered in Brazil and the USA saw prices sliding as producers and traders recognize that they are unlikely to find buyers in the next month if they delay. Producers are also cognizant of their rising inventory levels and the next meaningful tender volumes are only likely to emerge in the 2nd half of July from India. There is also a growing prospect of Chinese urea exports resuming in earnest in July, which will further exacerbate the oversupply situation.
Ammonium nitrate and ammonium sulphate prices got caught in urea’s slipstream and saw large drops this week. This decline was overdue as urea has fallen more substantially than either of these products in the past month. With demand from the Northern Hemisphere now over, ammonium sulphate saw a drop of 8-10% across the various price benchmarks.
While the ammonia market didn’t show much actual reduction in price, the message from all markets was the same – there is no demand right now. Supply from most sources remains strong and the outlook is thus for further price declines.
The import parity costing of urea yielded another decent step down, falling around R500/t on the week, despite the rand weakening slightly. It looks like the price slide will continue for at least a few weeks more, which is good news for local urea buyers.
Phosphates
The biggest news this week for phosphates was the emergence of Chinese exports with 1.2 million tons being offered on the Bangladesh tender. Phosphate prices around the world kept up their recent trend of moderate weakness, with small price drops being seen.
Trade data for US phosphate imports are showing the extent of demand destruction in that market, with year to date figures showing a 66% drop in imports. The US is expected to import 1 million tons less of phosphates in the 1st half of 2022 versus the same period in 2021. This does present an upside scenario later in the year if the Americans return to the market aggressively to make up this shortfall, which could easily send phosphate prices racing back up again. Of course, the key question until then will be what is the world supply situation for phosphate looking like.
The news about Chinese phosphate sales should be good for the market but it remains unclear what the volumes of exports will be. Any tons will help and will put some downward pressure on price but the world market remains extremely short of product and ideally the Chinese need to be exporting close to 1 million tons per month for the 2nd half of the year.
Brazil saw further small price drops this week as they continue to benefit from Russian phosphates flowing their way. Phosphate stocks in ports and warehouses are said to be very high, so importers are feeling the pressure to start selling product.
Trade data for MAP imports into South Africa for the period January-April shows that around 43,000t were imported, down 26% on the 58,000t imported in the same period last year. We do understand that a number of cargoes are planned to sail to this region in the next 6 weeks or so.
Potash
Mixed price directions for potash across different regions this week. In the Asian markets there is some upward price support as demand remains fairly strong. In the Americas weak demand and increasingly available Russian supply is pushing prices down.
The flow of Russian potash into Brazil has now begun to impact prices there and small price reductions are being seen. Unfortunately this hasn’t translated to equivalent price adjustments in Southern Africa as the potash supplied to the region has come from traditional origins such as Germany, Canada and Chile and thus not under the same pressure to discount as the Russians.
Another indicator of demand destruction seen is the 22% reduction in potash imports by the USA for the period January to April this year. US importing for their current season is largely complete, so this trade data is a good guide to the real impact that high potash prices have had on the buying of potash.
Potash imports have been flowing into Southern Africa and port stocks have built to comfortable levels. Local demand for potash remains extremely quiet, probably because farmers are more focused on harvesting right now, plus buyers are hopeful of lower prices if they wait. This situation could change very quickly though as port congestion remains a massive headache for importers and the situation is likely to get worse as fertilizer imports start to ramp up for the next 3-4 months. Already some vessels are facing 20-30 day waiting times for a berth, and this is may well become longer as shipping traffic increases.
General Market Outlook
Another volatile but strong week for crude oil, as gas prices start to respond to rising summer demand.
Brent crude oil rose into the mid-$120s/bbl during the week but closed at $122/bbl as negative economic news around a new Chinese covid lockdown cooled the market. There are also signs from the US that its demand for oil may slow as the impacts of expensive oil are now starting to be felt throughout its economy. European gas users were enjoying their best week in many months as prices slid to $25/MMBtu only to be shocked by a fire at a major US LNG export hub. Then sent European prices racing back up to $26.5/MMBtu – the US supplies more than half of Europe’s LNG. Earlier in the week, US gas prices were pushing $9.5/MMBtu on expectations of a very hot summer fueling gas demand but the outage of the Freeport LNG export facility meant that gas earmarked for export was redirected back into the US domestic market and pushed prices down to around $8.9/MMBtu by the end of the week.
CME maize prices firmed nicely over the past week, with the July marker rising almost 6%. Unfortunately the same rise was not experienced in the local market with white and yellow maize both shedding about 1% on the July contracts. Likewise sunflower was down on the week and only soya enjoyed a positive week on the local markets.
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