Nitrogen
Urea prices take a big plunge in all regional markets as even producers concede that buyer interest is minimal.
The Urea market is heavily oversupplied currently and the handful of active buyers are being flooded with offers from producers around the world. Producers were pinning their hopes on the next Indian urea tender that was delayed from December but as yet there is no sign of the tender being opened and the oversupply situation is significantly larger than any reasonable tender volume. Indian urea stocks are reported as being high and the government is therefore delaying permission to issue the tender. Demand from Europe, the US and Brazil is very quiet as local producers in the US and Europe are happily producing at capacity as natural gas prices in both regions are at 12 month lows. These regions thus have adequate inventory and local supply to meet demand. There will be a refill opportunity later in the Northern Hemisphere spring but if demand being as weak as it is right now, the supply-demand balance for urea is pointing towards sustained weakness for urea prices for the next 6 months. Of course, that presumes no macro-economic or political shocks during that timeframe.
Brazil already has 520,000 tons of urea imports fixed for January, compared to the 3 year average for January of around 450,000 tons, over and above the substantial carryover stock of urea from last year.
Ammonium sulphate likewise has a negative outlook for prices as major producers such as China have rising inventories and not much demand being indicated from any markets. Ammonium nitrate prices are starting to drift down too as European producers rebuild their stocks as production economics have improved dramatically for them with EU gas prices falling – CAN prices dropped around $25/t this week but industry commentators are surprised that the reduction isn’t much greater as the cost of CAN is way above comparable nitrogen products.
Ammonia prices also moved sharply down, with the Middle East price dropping by more than $100/t and now trading below $800/t. With ammonia being a key raw material for ammonium phosphate production, this price reduction improves economics for MAP and DAP producers. The question is whether lower input costs starts to drag MAP and DAP prices down just as they have seemed to be stabilising.
Phosphates
Phosphates markets were generally quiet this week, with small price adjustments seen as the different regional prices continue to converge.
Brazilian MAP prices edged up another $5-10/t this week, while European prices edged down a similar amount. There is still a delta of more than $100/t between the most expensive markets and the lowest . Demand for ammonium phosphates is said to be looking positive in Europe and the US but on the flipside, the Indian government is looking to make huge cuts to its fertilizer subsidy on phosphates in particular. With phos acid prices looking likely to fall and ammonia and sulphur prices moving sharply down, there would appear to be scope for MAP prices to decline if producers maintain current production rates. With China still out of the picture as far as phosphate exports goes, the supply-demand balance is finely poised.
The import parity cost of MAP was unchanged in dollar terms this week but the strengthening of the rand by almost 2.5% helped the rand cost of MAP shrink commensurately.
Potash
The big market move for Potash was the slashing of prices in the USA as Canadian producers accepted price cuts to boost sales
The Indian potash contract price negotiations are ongoing and settlement is not expected before February. With the anticipated price of $450-500/t equating to a netback for Canadian potash producers supplying to India of around $420-450/t, the Canadians could not sustain prices into the US at close to $500/t.
The rebound in the Brazilian potash price seems to have run out of steam and the price has settled at just over $500/t for the time being. Brazilian potash consumption has been strong driven by the Safrinha planting season, however high stocks levels and ongoing high import volumes have ensured that supply has not been a constraint and it is unlikely prices will rise unless there are big moves in prices in other regions, which also looks unlikely.
The market consensus points to potash prices perhaps stabilizing somewhat during Q1 but the downturn in prices is expected to resume strongly in Q2.
General Market Outlook
Brent crude oil prices rise strongly this week from $78/bbl to $84/bbl. Expectations of energy markets steadying this year is creating optimism in most economies.
Brent crude prices gained more than 7% this week as oil consumption figures for China increased and expectations of less aggressive interest rate hikes in the US. The US Energy Information Agency in its recent short term energy outlook issued a forecast that Brent crude will average $83/bbl for 2023 and average $78/bbl. If these forecast oil prices prove to be realistic, this price level will provide downward pressure on fertilizer production costs and probably sustain fertilizer prices at current levels or perhaps lower. The European TTF gas prices bounced around in the low $20s/MMBtu this week but look set to close back at the $20/MMBtu mark. US natural gas prices are stable at $3.5/MMBtu currently.
This week saw CME prices firming as the US economic outlook was boosted by expectation of interest rate hikes being less aggressive. On the local front the opposite applied as the rand recovery against the dollar caused Safex numbers to go negative week on week. The exception to this was sunflower, which saw a 10% rise this week – this was driven by tightening local stocks and consumption being much stronger than predicted at the end of last year.
Latest Direct Hedge quotes for urea and MAP swaps in USD:
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