Nitrogen
The Indian tender prices were published this week and shocked the market as offers equivalent to sub-$500/t in the Middle East were given. Urea prices around the world are beginning to tumble as a result.
Gavilon was the low bidder in the Indian urea tender, with prices of around $520/t CFR India, which equates to a Middle East fob below $500/t. The Middle Eastern urea price remain around $565/t FOB this week but seem likely to decline dramatically in the next week or so. Even more surprising than the low price was the news that two of the urea cargoes offered will come from China, despite the ongoing ban on urea exports from China. The Indians will likely counter-offer the same (Gavilon) price to the other bidders on the tender, which will force those suppliers to drop their prices or lose their volumes. In a climate of lacklustre sales and demand for urea remaining very quiet, most suppliers are likely to cut their prices and take the business.
The Brazilian urea price dropped $30/t this week as buyers were able to take advantage of ample supply to pressure sellers to discount against each other. With the Indian tender prices now known, Brazilian buyers will be even more aggressive in pushing for lower prices. Buying into Southern Africa remains slow, with most of the major importers delaying their July vessels into August or beyond. The reasons given for pushing back imports are lack of sales interest from growers and high stocks. Of course, the prospect of urea prices falling is also a strong incentive for everyone to postpone purchasing. But delaying imports comes with a huge risk for the whole industry as the ongoing Durban port issues mean that these postponed vessels will be further delayed by around a month when they do arrive in Durban. And at some point the fertilizer application season will start, consuming whatever urea is already in-country. If demand is greater than what is available locally, we will see a local dynamic emerge where urea will be more expensive than the import parity price as buyers compete with each other for limited tons.
Ammonium sulphate prices shrank modestly this week on the back of urea prices continuing to decline, and the market expects amsul prices to reduce further with the weak outlook for urea. CAN prices continue to defy the general nitrogen market trend and are holding firm, especially in Europe. The limited number of CAN producers means that supply is constrained, especially with most European plants remain idle due to high gas prices, so CAN/ammonium nitrate appears able to maintain current prices.
Ammonia prices in Europe edged up due to high gas prices in that region and buyers being forced to pay whatever it takes to secure volumes. In other ammonia markets there was less action – the US price is expected to edge up slightly but the Asian markets are very quiet and ammonia prices in the Far East are declining.
Phosphates
Phosphate markets and prices were flat this week as high stocks and limited demand were the main features. Chinese phosphate capacity is now running at below 50% due to the ongoing export restrictions.
Trade data for the first half of this year showed the severe impact of the Chinese export ban on phosphates, with China’s exports for H1 2022 being only 45% of its H1 2021 exports. With the Chinese domestic fertilizer season now being over, Chinese producers are being forced to cut operating rates as their stocks build and they have no outlet for their product.
OCP, the major Moroccan phosphate producer, is continuing with its plans to increase its capacity and exports by building new plants. They are indicating that their phosphate production should increase by around 10%, or 1.2 million tons, for 2022. This increase will help balance the market but is not enough to cover the gap left by the Chinese withdrawal. OCP plans to add a further 2 million tons of phosphate capacity in 2023.
Sulphur, which is the raw material for sulphuric acid that is needed to produce phosphoric acid, is seeing a big price downturn. This will offer some cost relief for integrated phosphate producers, although the impact on overall production costs is nowhere near big enough to push phosphate prices into a large downward correction. Ammonia prices remain stable to firm and energy costs (required for the mining of phosphate rock) continue to sit at high levels.
Potash
The South African potash import price saw a $50/t downward correction this week. Potash prices are under pressure in most markets around the world as buyers insist on lower prices.
Brazil remains very well supplied in terms of potash with high stocks and with world grain prices seemingly under pressure, the Brazilians are pushing hard for lower potash prices. Similarly in Malaysia, which is the biggest potash market in Asia outside of China and India, palm oil prices have fallen in recent weeks. Palm oil production is the biggest potash consumer in Malaysia. Thus SE Asian potash prices are also under strong pressure as affordability is a big concern in the region.
Expectations are therefore that potash prices may see further moderate reductions over the next months or so. However Q3 buying is expected to pick up as the Southern Hemisphere fertilizer season approaches. This increase in demand should at least stabilize prices, if not push them back up.
General Market Outlook
Another volatile week for energy prices as crude oil rose back above $100/bbl. The partial recovery in gas supply from Russia to Europe gave European consumers some relief. Interest rate hikes seen across Europe and in South Africa as Central Banks act against inflation.
The Brent crude oil price continued its rollercoaster ride this week. It rose strongly from just under $100/bbl to touch on $107/bbl midweek. Over the past two days it has slid down again to $102/bbl. Extreme summer heat and the resultant demand for air conditioning has caused gas prices to leap up in the US. The US Henry Hub gas price is trading just below $8/MMBtu but gas prices in other US regions have exceeded $11/MMBtu. This is expected to be a short term phenomenon while the weather remains hot. The Nord Stream gas pipeline from Russia to Europe was restarted this week, although gas volumes remain at about 40% of capacity, allegedly due to ongoing compressor problems. The resumption is some gas flow to Europe caused the European TTF gas price to drop to $46.5/MMBtu, down from $55/MMBtu seen two weeks ago.
Ukraine and Russia came to a compromise this week to allow up to 20 million tons of Ukrainian wheat to be exported from the Black Sea. This has caused wheat prices to return to pre-invasion price levels. White and yellow maize, soya and sunflower prices all continued to fall this week, both locally and internationally. The excessively hot weather across most of the Northern Hemisphere is starting to raise fears of damage to crops but it’s too early for any indications of what this might be.
We invite you to have a look at the following website to get a feel for the loss in food production (measured in terms of calories) resulting from fertilizer demand destruction that arose from the fertilizer price spike in the past 12 months. The website has the capability to consider different base assumption and presents different outcomes.
The most sobering part of the analysis is how much of our region has been negatively affected, and for many African countries the reduction in food production is severe.
Latest Direct Hedge quotes for urea and MAP swaps in USD:
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