06 October 2010 16:44 [Source: ICIS news]
By Carl Roache
LONDON (ICIS)--The tone of the global urea market has weakened following a period of sustained strength, but it remains unclear whether this is a momentary blip or the start of a prolonged trough.
On the whole, urea prices have increased steadily since June, with sharp rises seen during much of September.
At the start of September, urea was priced at $278-285/tonne FOB Yuzhny, and then surged to $340/tonne FOB during the second half of the month.
This represented an increase of more than 55% in less than four months.
Other origins enjoyed similarly impressive rises, not least
However, over the past week it has become clear that some of the steam has come out of the urea market.
Recent sales made in end markets like
Egyptian urea indications have dipped lower. The most recent sale was last week at $380/tonne FOB, down from a peak of $395/tonne FOB achieved a week earlier.
“The whole situation is under pressure. Buyers want confidence from the market and they want to be sure that the pressure will stop,” said an Egyptian seller, explaining the current reluctance among buyers.
“They are afraid of prices collapsing and they are cautious.”
Another seller echoed these sentiments, adding: “The buying mood is not so good.”
Are global urea prices at the start of a correction which will wipe out much of the recent gains?
References to 2008 - when prices spiked and then collapsed - have been common in the market over the past few weeks.
Rising crop prices played an important part in the recent urea prices rises, as it gave importers/farmers the confidence to purchase urea at higher prices.
Extreme drought saw Russian Prime Minister Vladimir Putin announce a ban on grain export in mid-August, which will last through to autumn 2011.
International crop prices reacted to the news, climbing sharply.
In mid-August, corn was priced around $4.1/bushel for the front month. By mid-September, it had climbed above $5/bushel.
Other crops, such as wheat, also saw rises during this period.
However, as September drew to a close, the crop markets turned more bearish on
On 30 September, the US Department of Agriculture (USDA) published its latest Grain Stocks report, which showed a sharp build in crop stocks.
Subsequently, corn prices fell and are currently priced around $4.8/bushel for December.
Are urea prices set to follow crop prices downward?
While certainly a major contributor, crop prices were not the only driver in the recent urea price surge.
Yara’s increases to nitrate prices in
The supply/demand balance played a major part in the recent price development.
This supply/demand situation is likely to be the key driver in future price movements.
In terms of demand, the outlook is healthy.
Last week, Indian state buying agency MMTC booked 680,000 tonnes of urea for shipment through to mid-November.
One of the Indian state agencies is expected to announce another tender during October.
Turkish buyers are re-emerging and Brazilian buyers need urea for second half October/beginning November loading.
In terms of supply, the high export tax regime will exclude Chinese urea exports until mid-October.
The Black Sea, Baltic and
These factors should prevent a major price correction taking place, certainly in the short to medium term.
Nonetheless, buyers are aware that the market has turned and prices could edge down in the coming weeks as producers come under more pressure to sell.
“Until November I can see the market will be a bit weaker. It will not collapse, it will just be softer,” said an Egyptian supplier.
“We believe the price will bounce back as we approach the third week of October. The demand will come back to the market,” an
“People do not want to take the risk at the moment.”
(Urea is a nitrogen fertilizer.
($1 = €0.72)
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