Nutrient prices converge as Urea takes another huge leap up, while Potash sees a large reduction.

Cost per kilogram of nutrient (R/kg):

Nitrogen

The announcement of the next Indian urea tender and the ongoing gas price issues in Europe supported another big upwards move in Urea prices this week.

The Middle East urea price moved up almost $100/t, and there was the compounding effect of the rand moving well beyond R17 to the US dollar. This pushed the local import parity costing of urea up by almost 18% to R14,000/t. The price increase at most urea benchmarks was driven by European purchasing activity. Demand is muted in most other major markets and Brazil interest in spot urea cargoes was non-existent this week

Most other urea markets were fairly quiet in terms of buying activity, so the extent of the price jump appears to be excessive. This is a comment we seem to be making almost weekly for urea. The Indian tender for 1 million tons closes on 9 September and this should set a reference price for urea for this month. It would not be a surprise if the Indians were able to achieve a price in the mid-$600s, even though the Middle Eastern price is currently in the low-$700s. There is not a lot of strong demand from other markets and there is availability from most producing regions, including China.

Market commentators are suggesting that the Middle East urea price will touch on $800/t again by the end of this year, once the Northern Hemisphere winter buying programme kicks in during Q4. The extreme volatility in urea prices of late suggests that nothing can be ruled out, but we feel that the global supply-demand balance for urea indicates that prices could easily find an equilibrium point in the $700s and possibly even high $600s. Sentiment beats fundamentals these days, and is the most difficult market behaviour to predict, so any forecasts are risky.

Ammonium sulphate prices made a small movement up this week, as its nitrogen value is dragged up by urea. Amsul is trading at a large discount to urea or any other form of nitrogen, even if the sulphur content is given zero value. With ample supply of amsul into most markets, it is only Europe that is pushing the price up on the back of the gas issues in that region. Ammonium nitrate in the form of CAN rose around $25/t this week, also driven by activities in Europe. Despite this week’s increase, urea continues to almost 50% cheaper on a unit of nitrogen basis than ammonium nitrate.

Ammonia was much quieter this week as demand is said to be low in most regions. Even the high gas prices in Europe weren’t sufficient to impact ammonia prices. Stock levels in regions like the Far East are very high, so producers there are looking to the West to place their volumes, which should keep a lid on prices for the next few weeks.

 

Phosphates

Phosphate prices trend downwards as demand remains weak in most markets, and cost pressures have been insufficient to either constrain production or enable producers to stabilize prices.

Indian buying was the only notable trading activity this week, and with the Indians able to get up to $50/t off on DAP, they bought around 500,000 tons. Brazilian MAP prices shed another $15/t as that market has high stocks levels and a lot of buyer resistance to current prices.

The Middle East MAP price dropped $20/t this week but on the local front, the rand losing more than 3% to the dollar meant that our import parity costing of MAP actually went up slightly. The outlook for MAP prices is quite bearish and the market expects prices to continue the current downward trend for the remainder of the year, even with Chinese exports being absent and high gas prices in Europe.

 

Potash

The local potash price sees a large downward adjustment of $100/t, while international potash prices keep falling too. 

The lack of local potash sales meant that importers sitting on large positions were under pressure to discount to stimulate sales and make space for incoming cargoes. This is good news for local buyers, although this price adjustment still does not bring Southern Africa into line with Brazil. To achieve price parity with Brazil, the local price would need to fall another $50 or so – maybe there is more good news for local potash consumers in the coming weeks?

The Brazilian price shed around $25/t this week, as the same situation prevails there – high potash inventories and buyer resistance to price. There are a number of Asian tenders being launched but these are unlikely to overturn the downturn in global potash prices. The outlook for potash remains similar to last week – international prices should continue to see gradual price reductions over the coming months.

 

General Market Outlook 

The Rand took a beating against the Dollar this week, losing more than 3%. Brent crude saw a massive turnaround as prices fell from $105 to $93/bbl by the end of the week.

Energy prices continue to be one of the major sources of volatility in commodity markets. Brent crude prices fell as Russia made it clear that it would not make any production cuts. European gas prices drifted down to the $80/MMBtu level after touching on $100/MMBtu last week. However the latest news is that Russia has shut down the Nord Stream 1 pipeline indefinitely, so some extreme market reactions are certain in the coming days. The European economy is in recession and the Euro is losing ground against almost all currencies – more crazy gas prices are going to seriously damage European manufacturing.

The shipping market has been gloomy for the past few weeks, with rates on the main fertilizer routes all coming down. The oil/energy price plays a role in the shipping cost equation but fundamentally it is lack of demand (cargoes) that is causing rates to fall. With fertilizer import volumes into the Southern African region lagging previous years, it is probable that imports will pick up dramatically during the remaining 4 months of 2022 – ship availability and cost is unlikely to be a constraint, however port congestion and inefficiency will definitely delay imports.

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

The urea forward price quotes stabilized this week, with numbers settling in the high $700s for the upcoming few months. The Swaps market pre-empted (or predicted?) the $100/t increase in the physical urea market that occurred this week. The fact that the Swaps quotes for the coming few months remain at current levels rather points to the urea price running out of momentum – we feel that this will probably be the case for the next month or so – and price reductions in the Indian tender are highly possible. But the urea price is likely to continue firming later in Q4.

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.