FocusUrea market reeling from China tax hike

18 April 2008 17:15  [Source: ICIS news]

By Carl Roache

 

LONDON (ICIS news)--No limit is in sight for global urea price rises after China confirmed a 100% increase in export tax on fertilizers, market participants said on Friday.

 

Domestic prices, however, have already started to fall since the announcement of the duty hike, which was designed to ensure domestic supply and cap local prices.

 

The increase takes urea export duty to 135% from 20 April to the end of September, effectively removing Chinese urea from the export market and leaving global markets short of the product, which is used to boost the growth of crops such as wheat and corn. 

 

Rumours of the impending tax increase circulated in the urea market last week, prompting global prices to spiral, and global numbers have continued their unprecedented ascent since the formal announcement.

 

“It is going through the roof,” said a trader. “The sky is the limit.”

 

Black Sea prices have risen at least $30/tonne (€19/tonne) this week, traders said, despite most producers withholding firm offers. Traders reported business at $510/tonne FOB (free on board) for Yuzhny urea for May loading, an increase of more than 6% from last week’s high.

 

“We will see over $600/tonne FOB in Yuzhny soon,” said one trader.

 

Baltic producers have also stepped back from the market, said traders, who are bidding in anticipation of heavy Latin American demand, but can barely find any offers. Price ideas are at $480-490/tonne FOB Baltic, up around $45-80/tonne on the previous week.

 

Major Asian demand was contributing to the firm sentiment. Pakistan announced a surprise requirement for 350,000 tonnes of urea for May-July shipment, while India’s State Trading Corp (STC) is currently in negotiations to secure around 650,000 tonnes.

 

Indian Potash Limited (IPL) is also widely expected to tender shortly for a minimum of 650,000 tonnes. With China all but out until October, the bulk of this requirement is now likely to come from the Middle East and Black Sea.

 

Middle East producers are backing traders in tenders at $505-510/tonne FOB, a huge rise from the last business done out of the Arab Gulf at the end of March at around $410/tonne FOB.

 

“I am looking at above $505/tonne FOB at the moment,” explained a Middle East producer. “We are getting a lot of requests for product from traders.”

 

The supplier said that the loss of China had prompted interest from non-traditional regions.

 

“We did not expect that much demand from Asia,” added the source. “Since China is out, there is a big gap there. When China is there it covers a lot of the demand in the Philippines and Vietnam.”

 

Saudi Arabian supplier SABIC reported firm bids from traders at prices above $450/tonne FOB for May, but turned these down.

 

“Traders are anticipating high prices,” said a Middle East producer. “There are clear indications that May prices will go much, much higher.”

 

Egyptian prices have shown similar upward movement. This week, Egyptian Fertilizer Company (EFC) sold at $550/tonne FOB Adabiya. Prior to this, the last reported Egyptian business in early April was in the range $430-440/tonne FOB.

 

“We have been approached by many people [for urea],” said an Egyptian producer. “Demand is very high because of China.”

 

Buyers in some countries, such as Brazil and Mexico, acknowledged that higher prices were here to stay and had begun to purchase at around $540-550/tonne CFR (cost and freight). A few weeks ago, these buyers were unwilling to pay $450-460/tonne CFR.

 

In the US, prices for granular urea barges leapt to $460/short ton FOB Nola late last week, on sentiment generated by the news from China.

 

They have since settled back to $450-460/short ton FOB for prompt loading, but are still $90-95/short ton higher than before the news of the tax first hit the market.

 

Despite the rises elsewhere, the tax increase was already starting to have the desired effect in China by forcing down prices in the domestic market. Producers were offering product CNY100/tonne ($14/tonne) down on last week at yuan (CNY) 2,000-2,050/tonne bagged ex-works for prilled urea.

 

The full impact of the higher export tax would probably only be felt from late May onwards as there were still volumes in storage and traders were still selling urea cargoes to load before the end of April, which will only be subject to the 35% tax rate.

 

($1 = €0.63/CNY6.99)

By: Carl Roache
+44 20 8652 3214

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