IFA’ 12: Positive sentiment expected at annual fertilizer meeting

18 May 2012 16:51  [Source: ICIS news]

By Rebecca Clarke

LONDON (ICIS)--A generally positive sentiment is expected to prevail at next week’s annual conference of the International Fertilizer Industry Association (IFA) in Doha, Qatar, as the the fertilizer market looks to have recovered from the financial crash in 2008, with prices on a firmer footing compared to this time last year.

Strong commodity and crop prices should boost fertilizer demand and consumption is predicted to grow by around 2.5% this year.

However, there will likely be some caution too from an unclear global economic picture at present and some recent company earnings results showing a mixed picture.

While some fertilizer companies, including Yara, have posted increases in first quarter earnings on the back of good sales volumes and healthy margins, others have seen income falls.

Market caution will also come from unstable political situations in Syria, Egypt and Tunisia and a lack of clarity on government import and export policies in India and China, which have impacted fertilizer supply and demand over the past year.

Global urea market sentiment is weakening heading into the IFA conference. India being unexpectedly offered up to 1.2m tonnes at the lowest offer under its recent tender prompted ideas that the market was due to soften and STC decided to buy around 700,000 tonnes and come back to the market again later.

Buyers elsewhere have also stepped back from the market in anticipation of prices moving down further. Latin American buyers are on the sidelines, watching closely. Pakistan is due to tender next week, but amid expectations that TCP may only purchase modest volumes this is not lending much support to the market.

Yuzhny prices have already corrected down, trading in the mid-$490s/tonne FOB (free on board) this week in line with the implied net back from India. Bids are now lower and with paper trading in the low-$470s/tonne FOB there are expectations next business will be at lower levels.

In the short term, the timing of the next Indian tender will be key to the market as upcoming demand in Pakistan and Latin America is not deemed sufficient to support current price levels. Expectations are India will come again in June, although opinion varies as to whether it will be earlier or later in the month. The longer India waits, the likelihood is prices will decline further.

Sentiment is in contrast to this time last year, when prices were firm against limited supply and strong demand. But at the same time, prices are trading at higher levels. Heading into the IFA 2011 conference, Yuzhny was trading in the $400-410/tonne FOB range, around $90/tonne lower. Arabian Gulf prices were in the $410s/tonne FOB, around $100/tonne lower, while Egyptian prices were in the $430s/tonne FOB, over $100/tonne lower.

This can partly be explained by the huge run-up in US prices over the past few months, but is also due to continued robust fertilizer demand and firm crop prices, with corn trading above $6/bushel. Delays to new supply projects in Qatar, Algeria and Egypt have also helped support price levels.

The phosphates market is steady-to-firm going into June against tightening supply. US, Russian, Mexican, Moroccan and Jordanian producers all look comfortable underpinning the recovery of the phosphates market from its first-quarter slump. Continued demand in the US domestic market still has a role to play in providing supplier relief in a buyers’ market, as does the lack of Tunisian product availability.

Prices have thrown off any lingering first-quarter weakness thanks to MAP (mono-ammonium phosphate) and TSP (triple superphosphate) demand surges in multiple markets, which have created a buying scramble for product.

The DAP (di-ammonium phosphate) market is hanging off the MAP/TSP price hike coat-tails, but the need for price discovery from India is becoming pressing. Export prices are being pulled upward in a MAP-driven market and a recent sale out of the US Gulf at $570/tonne FOB opens the way to higher prices being achieved for June and July. Tampa prices have gained traction since the $80/tonne plunge at the end of 2011, but they have some way to go before achieving the $605-610/tonne FOB levels recorded this time last year. Maintaining the upward trend is dependent on supply and demand between China and India, which is so far unresolved.

Similarly to this time last year, China and India have taken centre stage in the supply/demand scenario for the second and third quarter, but the 2012 play has a different theme. India has yet to settle second quarter phosphoric acid contracts, which will delay DAP contracts with the US. China will not want to reveal its hand until the contracts are settled and producers are backing off from current Indian price ideas that are viewed out of kilter with the firming market direction.

Although the recurring question of how much DAP China will export always remains unanswered, there is added uncertainty over how much DAP India will import. India is stalling on talks to agree contracts and major players withdrawing from IFA will cause further delays. Timing is going to feature in the endgame. China’s narrow export window, coupled with limited port capacity, could collide with India’s monsoon disrupting discharge and farmers scrambling for DAP in late July as inventory is depleted.

Global demand for ammonia is currently intensifying, with strong competition for cargoes prompting expectations of further upward price movement in next business. Last week Yuzhny prices jumped $70/tonne to $550-560/tonne FOB on the back of strong demand, particularly from the US and limited supply out of Trinidad.

Yuzhny levels have now reached a fresh 2012 high of $570/tonne FOB. The higher prices have seen Ukrainian producer Odessa Port Plant (OPZ) opt to restart its second ammonia line, which has been down since the start of the year. The extra supply looks set to be easily absorbed into the market. June spot tonnes are now largely sold from Yuzhny and thoughts are starting to turn towards July.

The upward price trend heading into the IFA conference is similar to the one observed last year; however, Yuzhny prices are currently around $65/tonne higher. Whether the price momentum can be maintained will largely depend on the supply/demand balance moving forward, but with US demand looking strong for June/July cargoes, some further increases look to be on the cards.

The higher prices in Yuzhny, strong demand for imports into the US and limited Trinidad availability will translate into a higher price in Tampa for June. Early indications suggest a price in the $615-635/tonne CFR (cost and freight) range, up from the $545/tonne CFR agreed for May.

East of Suez, ammonia prices have also surged on tight supply from the Middle East and southeast Asia, together with healthy demand and the absence of Iranian material given international trade restrictions. A deal concluded by Mitsui this week at $570/tonne FOB for 10,000 tonnes of ammonia from Qafco for second half May loading reflects a hefty $60/tonne jump from last concluded business.

At the same time, weak Asian prices in downstream segments such as acrylonitrile (ACN) and caprolactam against high feedstock values may push chemical producers to lower operating rates or stop output completely. China Petrochemical Development Corp in Taiwan has already lowered the operation rates at one of its ACN plants, and is considering further production cuts. Should more producers decide to trim operating rates, ammonia consumption could see significant reductions and lead to an eventual downward price adjustment, such as the one seen in the fourth quarter of 2011.

The sulphur market has demonstrated relative stability, with less price fluctuation, in contrast to this time last year. Key regional prices are all below levels a year ago, but being maintained high above the historical and post-economic crisis levels. This trend can be illustrated by the monthly official selling prices by Adnoc (Abu Dhabi National Oil Co), ranging $180-240/tonne FOB Ruwais in May 2011-12 compared with $65-240/tonne FOB the year before.

Current price volatility is caused by a fundamentally tight market. However, this tightness comes as a result of many unplanned, short term factors, which can tip the market either way going forward. Ahead of the IFA conference, export tonnes out of Russia have dived due to logistical reasons, subsequently leading to a spike in spot demand from Morocco that temporarily displaced weaker Chinese demand.

The phosphates fertilizer market is a major sulphur consumer, and the hiccup in phosphates demand in the first quarter dragged sulphur prices down. But the drop was soon arrested by a surge of Chinese speculative traders, scrambling for cheap feedstock ahead of an anticipated phosphates export season (1 June-30 September). Chinese prices stand at $210-225/tonne CFR this week, down $20-25/tonne from May 2011.

A likely discussion next week is how much sulphur will be required for downstream fertilizer production during China’s high export season, which thus far is unclear. China - responsible for 25% of the total global sulphur traded in 2011 - will remain the wild card.

As is often the case, the potash market is quiet ahead of the IFA conference. But this time around sentiment is much more cautious compared to the same time last year. Prices are under pressure because of high global inventories, and dealers have been focused on ending the spring season with minimal inventory. Producers agree that the year began on a slow note but expect demand to rebound in the second half once wholesalers start restocking.

For now, suppliers are focused on establishing a price increase of $30/tonne to $550/tonne CFR in Brazil, in anticipation of similar increases in southeast Asia. India continues to be a concern since importers have delayed signing current year contracts. It is hoped that if higher prices are established in Brazil and southeast Asia, pressure would build on India to conclude current year contracts at the earliest. Indian importers, however, are not in a hurry to sign new agreements because of high stock levels, and are likely to begin negotiations in July.

Potash prices have not significantly changed since this time last year. The last concluded business for standard MOP (muriate of potash) was heard at $500/tonne CFR southeast Asia and at $520/tonne CFR Brazil, in line with last year’s levels. It is being speculated that suppliers may announce new business done in Brazil at $550/tonne CFR during the conference.

But the delayed start to the year and a cautious outlook for India means that demand will be hit. Potash major PotashCorp of Saskatchewan has revised downwards its forecast for 2012 global potash demand to 53m-56m tonnes, and sees its own sales at 8.8m-9.2m tonnes. In January, the company had forecast global sales of 55m-58m tonnes, with its own sales at 9.2m-10m tonnes.

Freda Gordon, Karen Thomas, Deepika Thapliyal, Richard Ewing, Gabriela Wheeler and Frank Zaworski contributed to this story

By: Rebecca Clarke
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