Urea continues to rebound this week. Phosphates and Potash slide steadily downwards on weak demand.

Cost per kilogram of nutrient (R/kg):

Nitrogen

The big surge in urea prices that started late last week played through the market this week, with large gains seen in most urea benchmark locations. High gas prices in Europe are the motivation for bullish nitrogen prices but this is mostly sentiment as the global supply-demand balance remains unchanged.

The international urea market is full of hype about strengthening prices but this is driven by suppliers, who are keen to reverse the discounts that the market gave on the recent Indian tender. The latest European gas price events gave them ammunition to push this story. In reality, almost all European urea plants have been idled for many months now, so the lack of gas or high gas prices really do not translate into more expensive urea in Europe because no urea is being made there. Europe does have to import its shortfall of nitrogen that has resulted from domestic production being stopped but this import requirement has existed for close to 6 months now. In other words, the European nitrogen supply-demand balance has not shifted in recent weeks. In fact there is a good counter-argument that European demand could drop away any time as the fertilizer season is over (i.e. beyond some scattered top-dressing requirements, there is no urgent need for nitrogen) and the European stocking programme for next spring usually only starts in earnest in Q4.

In general urea demand is quiet around the world. North America is experiencing mixed sentiment with southern states facing a drought which has ruled out most late season top-dressing interest, while northern states start their refill programme ahead of winter. Many Asian markets are reporting low demand and the next Indian tender is expected at the beginning of September only. South America still has relatively high stocks so buyers are ignoring the recent price increases for the most part. Urea prices are likely to be volatile for the coming month at least and further ups and downs are probable.

Ammonium sulphate prices which have been falling in recent weeks, stabilized somewhat this week with the urea price hike helping support them. At best the amsul market is seen as stable at current levels, with ample supply and moderate demand. It would need urea to continue rising for amsul to see any big price increases. Ammonium nitrate remains firm as its biggest market, Europe, deals with the high gas price issue mentioned above. Any European production of AN/CAN would be based on imported ammonia, which would translate into a high cost of production – this is what is supporting the high AN prices currently.

Ammonia settled down this week as increased availability from a number of regions kept prices in check. The wide delta between urea prices and ammonia has encouraged some ammonia-urea producers to cut back on urea production and rather sell their ammonia because of the higher returns ammonia offers. Cutting back on urea production also demonstrates these producers’ lack of confidence in urea prices being sustained, irrespective of what they may be saying in public about high prices. The outlook for ammonia is for stable pricing for the next few months.

Half year trade data (January to June 2022) for urea shows that South Africa is around 75,000 tons (22%) behind on urea imports compared to the same period last year. This underlines the message that we have been giving for some weeks now: local importers have paused on purchases because fertilizer is not moving from port to farm. This leaves the country vulnerable to stocking out when the season does start because the lead-time on imports is a good 60 to 90 days as a result of delays in local ports. There is a high risk that once growers do start buying fertilizer the current inventory will deplete faster than it can be replaced and growers late on ordering may have a long wait to get product.
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Phosphates

Buying interest was absent for phosphates this week as buyers push for further price reductions, on the grounds that the collapse in sulphur prices has reduced the cost of phosphate production.

Phosphate prices continue to head down at major benchmark points such as Brazil and India. These reductions have in turn pushed the Middle Eastern price down by $30/t. Shipping from the Middle East to South Africa has eased off a few dollars too, which yielded a 3% lower import cost this week. The increase in the nitrogen (urea) value this week means that the remaining value of phosphate after deducting the value of nitrogen in MAP is close to 6% cheaper again this week. Phosphate has fallen from R66/kg to the current R58/kg in four weeks, a drop of almost 14%. The rand has played a role in that change but it gives an idea of the extent to which phosphates prices are trending down.

Most of the fundamentals for phosphates indicate that prices are likely to continue easing downwards slowly over the coming months. The lack of Chinese product in the market has now played out in terms of pricing and the Chinese production rates are now down to 40%. A meaningful change in Chinese production (either up or down) would be enough to shift phosphates prices away from their current level but there is no sign of any big change currently.

Phosphates look set to continue their slow but steady decline for the next month or two, which will give South African growers some relief. The ongoing decline in prices also has the unfortunate effect of delaying purchases, which raises the risk of fertilizer stocking out in the local market.
 

Potash

Potash prices continue to slide downwards as suppliers unsuccessfully try to stimulate demand. Falling crop prices and high stocks in Southern Hemisphere markets are maintaining downward pressure on potash. 

Most of the potash benchmarks around the world showed moderate declines in price. Potash suppliers are now avoiding Brazil because of the high stocks already in country and trying to direct cargoes elsewhere to avoid forcing the price down even further. Potash is now more than 20% down from the peak in April. Market commentators are now suggesting that the potash price will continue to reduce at a slow rate over the coming 6 months, as supply remains stronger than expected and high prices have done lasting damage to demand.

Half year trade data indicates that South African potash imports are almost 30% down year on year, at around 125,000 tons versus 170,000 tons for the same 6 months last year. This data is a bit misleading because the difference  can be ascribed to a single large vessel that arrived in June last year whereas an equivalent vessel was delayed in the Durban congestion this year and is only berthing now. The inventory status in South Africa is very high, so no short term concerns about availability of potash.
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General Market Outlook 

Crude oil prices reverse direction and head below $100/bbl as demand declines. Grain prices recovered some of their recent losses as hot, dry conditions in the US are increasing the risk of some yield declines.

Oil prices headed downwards strongly this week US monthly reports showed higher than expected oil inventories and the ongoing concerns of recession quietened demand. Brent crude that was $105/bbl a week ago was down to $95/bbl today.  EU gas prices sat above $60/MMBtu for most of the week before being pulled down by the oil price to drop to $59/MMBtu today. US gas prices continue to fluctuate sharply up and down between $7.5 and $8.5/MMBtu as influences like oil price negativity is balanced against peak seasonal demand due to hot weather.

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

As suggested last week, the urea Swaps market saw a correction this week as the market over-reacted to increases in the physical market. The short term outlook for urea remains bullish but this is based mostly on sentiment in our view. The Q4 outlook does appear to be more realistic and balanced.

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.