Nitrogen
The price established in the Indian urea tender has failed to generate the buying interest that producers were hoping for. Many producers are now discounting prices to stimulate sales as producer inventory levels are high
The major producers in most urea-exporting regions are now incentivizing sales via discounts. An example of this is the Egyptian producer base – they opted not to compete aggressively in the Indian tender, with the expectation that they could get better returns from sales to Europe. However gas prices in Europe have now declined to a point where domestic nitrogen producers can restart production and urea stock levels within Europe are high. Thus the Egyptians are getting little interest and are being forced to drop their prices in line with other regions to try and attract sales.
Similarly, the US market is awash with urea, especially at the various import destinations. The Mississippi River has now closed to barge traffic for winter, so urea stocks at New Orleans (NOLA) at the entrance to the river system are now stuck there until the system reopens. There are apparently 8 urea cargoes still en route to New Orleans, so NOLA prices are going to be under severe downward pressure.
The successful bidders in the Indian tender are grateful for the business as they have at least sold substantial volumes at what is now proving to be a decent price. The Arab Gulf and South East Asian producers are comfortable with their stock positions for the time being, and urea prices in those two markets did not fall this week.
The outlook for urea for the coming few weeks is bearish and prices are expected to keep falling, despite November/December being a period of high seasonal demand historically.
With urea dragging nitrogen values down, ammonium sulphate prices are coming under pressure too. Amsul is one of the few fertilizer products that the Chinese are able to export without much restriction, so trade flows remain high and inventories in many target regions are also high.
As mentioned last week, lower gas prices in Europe are leading to the widespread restarting of fertilizer plants in the region. This is having the biggest impact on ammonium nitrate prices as Europe is the key target market at this time of year. CAN prices in Europe saw a $75/t reduction this week as traders with stock positions moved fast to sell before they have to compete with newly-produced product from the local plants.
There was minimal movement on ammonia prices this week, however the market expects prices to fall as many European plants restart and the European import demand shrinks. The big variable here is the European gas price – will it remain at current levels and if so, for how long? The European winter is just starting and the Ukrainian-Russian War has a huge impact on physical flow of natural gas to Europe. A big hike in natural gas prices and the picture for European nitrogen production will change immediately.
Phosphates
Phosphates prices in most markets maintained the downward slide this week, with India proving to be the only exception as some late season DAP buying boosted prices marginally.
There was an unexpected surge in DAP purchasing from Indian buyers this week. This gave prices in India a boost of $20-40/t, however largescale buying from India is now believed to be complete for the year. Indian DAP imports for 2022 are around 40% higher than in 2021. This was driven by the unfavourable economics in 2021 of making DAP from imported phos acid (because the phos acid prices were extremely high) and also the drawdown in domestic DAP stocks as importers held back on buying due to what they felt were excessively high prices in late 2021.
It was the same old story for phosphates in all the other markets – very poor demand and prices continuing to drift downwards. The seasonal closure of the Mississippi has caused US phosphate prices to fall as sellers have tried to chase sales.
MAP prices in Brazil have shrunk further and are poised to drop through the $600/t level. Port and inland MAP inventories are high and Russian producers continue to focus on Brazil for export sales, with most other markets closed to them.
The Middle East MAP price lost $10/t this week, as the CFR Durban price approaches $700/t. The fact that the Brazilian price is the best part of $100/t below the Durban value suggests that further price reductions are probable in the coming months. Of course the Southern African season for imports only has another 2 months or so left to run, so the window for lower cost imports is limited.
Potash
Supply of Potash continues to increase, and in the absence of demand Potash prices continue their downward momentuml.
This week it was the turn of South East Asia, which is a big potash consumer for the production of palm oil, to see a large adjustment in potash prices. Prices in the region fell between $20 and $50/t, yet SE Asian prices are still more than $100/t higher than Brazil.
The worldwide oversupply of potash continues to support falling prices. Brazilian prices shed $15/t again this week, as prices of below $600/t are being reported. The Brazilian price has dropped by 50% in the last 6 months and still no meaningful recovery in demand is being seen.
The CFR potash price for Durban saw a $10/t cut this week. There seems to be little the potash market can do but continue the ride downwards until the price bottoms out sometime next year.
General Market Outlook
Brent crude oil rises slightly, while EU gas prices continues to ease downwards. The Rand strengthened marginally against the Dollar.
Europe’s pending cut off from Russian oil caused Brent crude to strengthen moderately through the week from $93/bbl to touch on $97/bbl. Oil prices are expected to stabilize or even fall however as China has drastically increased Covid restrictions this week, following rising infection rates in many major cities. The situation around European gas prices continues to improve as the TTF benchmark is showing natural gas at $30/MMBtu, as gas storage facilities throughout the region are close to full. While this is positive for gas supply security and also prices, the situation could change very quickly if very cold weather were to hit or if gas production or supply was disrupted in Europe.
Most cereal and oilseed prices were stable on international markets this week, with very small declines reported on CME prices. The rand strengthening by 1.8% against the dollar to drop below R18:$ helped local Safex prices show small gains week on week.
On the shipping front, we have seen rates trend downwards very slightly over the past few weeks. Any saving is positive in terms of the cost of landed fertilizer in our market. However port inefficiencies continue to be a major risk and source of unnecessary cost of imported fertilizers. With the rainy season now properly underway along the entire African east coast, even greater port delays are likely.
Latest Direct Hedge quotes for urea and MAP swaps in USD:
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