IFA ’11: Fertilizer industry in positive mood ahead of annual meeting

20 May 2011 15:13  [Source: ICIS news]

By Rebecca Clarke

LONDON (ICIS)--The mood is likely to be positive at next week’s annual conference of the International Fertilizer Industry Association (IFA) in Montreal, Canada, because raw material and fertilizer prices have generally been on an upward curve over the past year.

This move coincides with the market continuing to recover from the financial crisis of 2008, fuelled by strong commodity prices and rising food demand.

Prices for most fertilizer products are significantly higher that at last year’s meeting in Paris, France, and the prospect for further price increases will be a likely topic of discussion.

However, there will be a note of caution despite the firm fundamentals, with industry players keen not to see a repeat of the collapse in prices witnessed in the second half of 2008.

Global urea prices are firm heading into the annual IFA conference. Limited supply for June alongside strong demand from traders has pushed Yuzhny and Baltic prices above $400/tonne (€280/tonne) FOB (free on board).

Arabian Gulf urea is also in short supply for prompt dates and firm trader bids at $420/tonne FOB have been rejected this week. Uncertainty over Chinese supply because of the export tax policy remains a major concern and another contributor to the strong market.

The contrast with last year is striking. Then, there was a clear downward trend in urea prices heading into the 2010 IFA conference, with Yuzhny trading below $220/tonne FOB, close to $200/tonne lower  than this year. Arabian Gulf urea was trading at $240-250/tonne FOB, around $170/tonne off present levels.

One of the major reasons for the increased prices has been the dramatic rise in the cost of crops. This time last year, corn futures were priced around $3.71/bushel, compared to $7.52/bushel they are currently.

The sentiment in the ammonia market is firm ahead of the conference. In contrast to last year, there has been no seasonal correction in prices, with continued supply issues in Trinidad since the start of the year having tightened availability in the western hemisphere, and demand remaining robust at the same time.

Current Yuzhny prices of $505-510/tonne FOB are around $200/tonne higher than this time last year and look set to remain firm for the time being. Given the ongoing production problems in Trinidad and higher Yuzhny prices, the June price for Tampa is expected to rise from the current $565/tonne CFR (cost and freight). Discussions for the June contract will start in earnest next week.

East of Suez, further upward price momentum is expected in the Middle East following last business at $505/tonne FOB and limited spot availability for June shipment. Current prices are around $180/tonne higher than a year ago. Demand from India and the Far East remains strong and higher FOB numbers are starting to filter through into contract prices.

Industry players are also expected to discuss the potential market impact of new production facilities due to come onstream later this year. Ammonia availability will be reduced by DAP production starting up in Saudi Arabia, anticipated for end June/July, but will then increase again with the start up of the Qafco V ammonia plants in Mesiaeed, Qatar, in the third quarter (Q3) and Sorfert Algeria ammonia plants located in Arzew, Algeria, towards the end of 2011.

Tight supply and demand fundamentals are supporting global sulphur prices, despite a persisting differential between FOB and CFR markets, and levels are well above figures from a year ago.

Abu Dhabi National Oil Co’s (Adnoc) May price, although not yet globally tested, is $95/tonne above the May 2010 price at $240/tonne FOB. In CFR terms, all markets have moved above the $200/tonne mark except for some first-half 2011 contracts held by North African end-users. In China, prices are firm at $235-250/tonne CFR, up by at least $115/tonne from last year.

Ahead of the IFA conference, the global focus for the sulphur market is on China. End-users are holding off buying because of the uncertainty over the phosphates export-tax policy. Sulphur is a key raw material for phosphate fertilizer production.

Domestic inventory levels have fallen to 1.61m tonnes, the lowest level since the start of 2011, and down from 1.81m tonnes at the start of Q2. Whether this significant drop, coupled with new sales concluded this week at $245-250/tonne CFR, signals the return of Chinese demand is still uncertain.

Even if Chinese demand remains reduced, demand for sulphur is unlikely to drop significantly because of new demand from increased sulphuric acid capacity and various metal-leaching projects due to come on-line. Such new demand could play a major role in supporting price stability, or even pushing prices higher, for the remainder of 2011.

As is often the case, the phosphates market is quiet ahead of the IFA conference, but the contrast between May 2011 and last year is stark.

Fundamentally, the market is in a much stronger position and prices are at much higher levels. The key reference price for diammonium phosphate (DAP) out of Tampa, US, is $605-610/tonne FOB compared with $460/tonne FOB this time last year.

The key issue likely to be discussed next week is how much DAP India can contract and how much China is willing, or able, to sell during its low export tax window during June-September. Unlike last year, when India settled its contracts with all the major suppliers very quickly, this year by contrast the rate of business has been much slower.

India accounts for around 50% of the global traded market (in 2010 it bought nearly 8m tonnes of imported DAP) and because it is subsidised, it does not take DAP at spot price levels but at a discount. Both the buy and sell sides need each other but the balance of power has shifted this year to producers given tighter supply fundamentals and stronger demand outside India.

What is not in dispute is India’s need for DAP, and with 2-3m tonnes yet to be contracted, or priced, the possibility remains that India will be short of product. This may necessitate a rethinking of the $612/tonne CFR import price to entice Chinese producers away from Pakistan.

The global potash market remains firm but thinly traded, as is typical just ahead of the yearly IFA conference. Many traders are hesitant to offload potash inventory until Indian MOP contracts are settled and prices are announced.

The negotiation process will be discussed widely during the conference as major exporters are hoping to conclude sales in spite of some Indian officials announcing a “holiday” from MOP imports last month because of high international prices.

Potash demand in Latin America and South America, as well as Southeast Asia appears to be strengthening. As a result, large producers are considering price increases for July shipments and traders in Europe say a price rise for Q3 is likely. Producers plan to assess expectations of their regional clients during the IFA conference before announcing any changes. Granular MOP is priced at $525/tonne CFR to Brazil, which was buying at around $400/tonne CFR at this time last year.

Another subject of discussion will likely be the Uralkali-Silvinit merger, which will be finalized soon, making it the largest producer by capacity in the world. Industry players will no doubt be discussing what this means for the market and future potash sales as producers try to keep up with global demand, pegged at around 60m tonnes this year.


Mike Nash, Carl Roache, Freda Gordon and Lauren Williamson also contributed to this story

For more on fertilizers visit ICIS pricing fertilizers http://www.icis.com/staticpages/fertilizerportfolio.htm

By: Rebecca Clarke
+44 20 8652 3214

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