17 May 2013 16:43 [Source: ICIS news]
LONDON (ICIS)--With last month's devastating plant explosion in Texas propelling fertilizer facility safety into the glare of the international media, observers of next week's International Fertilizer Industry Association (IFA) annual conference in Chicago will be seeking reassurance from industry leaders that no such incident could happen again.
Amid bearish market conditions and falling prices for most types of fertilizers, delegates will be hoping for some positive news at an event that will now feature a speech by Ford West, President of The Fertilizer Institute (TFI), about the West Fertilizer facility disaster on 17 April that has triggered widespread public concern over fertilizer plant safety.
In a month in which plans for two major new multi-billion dollar nitrogen fertilizer plants for the US were unveiled, industry chiefs will be looking to restore confidence in fertilizer plant and transportation safety in the face of a potential raft of new regulations and legislation.
In the group's 2013 industry outlook published in late 2012, Paris-based IFA said it expects world fertilizer demand to increase by less than 1.5% this year, despite strong market fundamentals in agriculture.
While the recent slowdown in market activity has been partly attributed to producers, buyers and traders putting major business on hold for the IFA conference, months of natural gas curtailments in Trinidad and Tobago and Egypt continue to hamper ammonia producers, while falling urea prices have prompted speculation that some Black Sea suppliers may reduce or halt urea production altogether in favour of ammonia.
Benchmark urea prices currently stand at $340-350/tonne (€265-273/tonne) FOB (free on board) Yuzhny for prilled urea, well down on the $495-497/tonne FOB seen in May 2012, and $350-360/tonne FOB Arabian Gulf for granular urea, versus $515-520/tonne FOB in the same month of last year.
The benchmark ammonia price has followed a similar downward trajectory to stand at $505-515/tonne FOB Yuzhny for May and June loadings, versus $550-570/tonne FOB in the year-ago period.
Diammonium phosphate (DAP) prices are currently at $485-495/tonne FOB Tampa versus $540-570/tonne FOB in May 2012, while sulphur prices have slumped to $135-155/tonne FOB Middle East from $175-210/tonne FOB 12 months ago.
Potash prices have fallen to $380-400/tonne FOB Vancouver from $440-480/tonne FOB in the same month of the year prior.
The difference in urea price levels can be partly explained by the weather delayed spring seasons in the US and Europe this year, which have dampened the market globally. This is in stark contrast to spring last year which saw Nola (New Orleans) prices rocket above $700/short ton FOB on an early season and lack of supply, boosting both granular and prilled prices.
This year, the US application season has just got into full swing and prices are languishing in the $320s/short ton FOB Nola, at levels that are encouraging talk of exports from the US Gulf.
Although exact timing remains uncertain, there is new capacity due on stream in the Middle East and Algeria, and this alongside expectations of further substantial exports from China this year, is also likely to contribute to lower average prices in 2013 compared to last year.
Although further supply issues from Egypt and Ukrainian plant shutdowns might reduce the supply surplus in June, there are already 2.3m tonnes of urea at Chinese ports waiting for the low export tax window to open in July and this will continue to weigh on the market and likely pricing.
India is expected to issue its next enquiry in June, which will likely be dominated by Chinese urea. However, there are expectations that the next Indian purchase could set a floor to the market and encourage other buyers back into the market.
Activity in the international phosphates market has picked up recently, with PhosChem agreeing 400,000 tonnes of DAP with its buyers in India for shipment until September 2013. This followed India's long awaited subsidy announcement at the start of May, which had been expected to trigger fresh buying interest in India. Chinese suppliers are also heard to have agreed volumes with buyers in India.
However, several uncertainties remain. Firstly, there is no clarity thus far on what price levels have been agreed by PhosChem. There has consequently been much speculation on price levels, with the market estimating a price between $505/tonne CFR (cost and freight) at the low end, and up to $520/tonne CFR on the high end.
Last confirmed business in India was at $515/tonne CFR under Rashtriya Chemicals and Fertilizers' (RCF's) recent tender and some believe this to be the current market level.
Indian demand for 2013 also still remains uncertain given remaining high stocks in the country. There are estimations that India will buy 4.5m tonnes of DAP in the 2013-2014 year. Imports in 2012-2013 were 5.7m tonnes. How many further contracts get agreed and what mechanism they take remains to be seen, but other producers will be closely watching for confirmation on PhosChem's price in India before starting their discussions.
The Chinese low export tax window for 2013 opened on 15 May - 15 days earlier than in previous years. The one-month extension of the export window for this year could possibly mean more exports in 2013, but much will depend on both international and domestic pricing.
China exported 3.93m tonnes of DAP in 2012. While some export deals have been signed, there had been no rush of pre-window business given uncertainty over Indian demand and prices. Faced with high production costs, Chinese producers had been looking to hold prices at $510/tonne FOB, but this is no longer deemed achievable given buyer price ideas and realistic prices are now talked in the $490s/tonne FOB.
What is clear is that phosphates prices are under pressure for the time being, and are below year earlier levels. Talk of possible CFR prices in India in the $505-520/tonne range would reflect a Tampa netback in the $465-480/tonne FOB range, meanwhile, current DAP offers in Brazil would reflect $470/tonne FOB. This compares to a Tampa price of $540-570/tonne FOB this time last year. Lacklustre international and domestic demand has weighed on US prices in recent months.
There are expectations that agreements in India could set a floor to the market and prompt other buyers to step in to make purchases, which could boost pricing sentiment.
The Black Sea ammonia market was quiet this week with only Yara active as it acquired an additional 20,000 tonnes for June loading at $515/tonne FOB from major producer NF Trading – the same price it paid for 65,000 tonnes last week.
Helsinki-headquartered NF Trading is understood to be close to concluding the sale of a 40,000-tonne June cargo to US industrial giant Koch, while Mitsui may swap or sell its monthly contract cargo from the producer, possibly to trader Transammonia (Trammo).
Potential buyers of these remaining June cargoes are understood to be targeting a price level of around $500/tonne FOB rather than $515/tonne FOB. Extra ammonia could be available in the Baltic next month with several urea and AN producers understood to be considering boosting ammonia output due better margins.
Compared to this time last year, the ammonia market appears far weaker with Black Sea prices well below last May's $570/tonne FOB level which was achieved on the back of several months of upward momentum triggered by a tightening demand/supply balance.
That upward trajectory has been reversed so far this year despite natural gas curtailments in Trinidad and Tobago and Egypt continuing to impact production rates and delays in the commissioning of the new $2bn Sorfert plant in Algeria. The plant was due to start in Q1 2013 but will not export any ammonia until at least Q3 2013.
East of Suez, Mitsui this week agreed to purchase a 23,400-tonne spot cargo from PIC and Marubeni agreed a deal for a 10,000-tonne spot cargo of Malaysian ammonia. Fertilisers and Chemicals Travancor issued a tender for 8,000 tonnes of ammonia for mid-June delivery to west coast India.
Production cutbacks at downstream caprolactam, acrylonitrile (ACN) and nitric acid plants are understood to have increased this week amid weak demand for industrial products, placing fresh downward pressure on ammonia prices in the region.
As a result, at least one major ammonia buyer in the Far East is considering delaying some of its June contract cargoes due to high inventory, with others saying they do not expect the downstream demand situation to improve in the short term.
The numerous sulphur cargoes on offer in recent weeks in the market have added further downward pressure to latest spot business, with prices slipping in key regions.
On the supply side, logistics in Russia have returned to a more normal basis following the delayed re-opening of the Volga Don river navigation. Middle East producers have commitments for the second quarter under contracts, but several spot cargoes have been on offer. With tenders closing in India, Saudi Arabia, Iran and Qatar over the past week, traders have been weighing up pricing options in light of falling price ideas from end users.
On the demand side, India has been lacklustre in recent months, with limited spot activity resulting in few opportunities to place cargoes. Last business was concluded in the $160s/tonne CFR. Offers in RCF's latest tender, up to around $180/tonne CFR, are above market levels due to the smaller quantity and associated higher freight costs at Mumbai port.
Buyers in North Africa have yet to agree second-quarter contract prices with Austrofin/Russia but cargoes have been moving on a provisional price basis so far. Phosphate production problems in Tunisia continue to limit sulphur consumption at Groupe Chimique Tunisien's (GCT’s) operations, alleviating any pressure to secure tonnage to supplement contractual arrivals.
Similar to the same period in 2011 and 2012, Chinese demand is slow because of the uncertainty over demand during the low phosphates export tax window. Buying interest this week has remained pedestrian and suppliers were heard trying to elicit bids in the $150s/tonne CFR with little interest stirring.
Global prices are consistently below this time last year. Since May 2012, sulphur prices have moved on a downward trend. Middle East prices have decreased steadily from the $190s/tonne FOB in the second quarter of 2012 down to the $160s/tonne FOB by the end of 2012.
In May 2012, uncertainty surrounded Chinese demand. One year on, China remains the wild card and spot prices are under considerable downward pressure. Stocks at the major ports breached the 2m-tonne mark during the start of 2013. Any revival in sulphur demand from phosphates producers may be tempered by competitively priced domestic sulphur and most market participants expect even lower spot prices in the coming weeks.
Another issue is the achievable DAP price level in India for Chinese producers. Producers are seen to be trying to reduce raw material costs due to margins being squeezed on the back of low price ideas for DAP.
Activity in the potash market has picked up this week ahead of the IFA conference as suppliers focused on increasing prices in spot markets such as southeast Asia and Brazil, and are keen to finalise fresh contracts for the next quarter.
Canpotex has announced fresh business into southeast Asia and says it has signed a contract at $470/tonne CFR for the third quarter for an undisclosed market, which is $20/tonne higher than the current price of standard/granular MOP (muriate of potash). However, buyers continue to resist current prices and it is yet to be seen how many more markets accept the new price levels for the third quarter.
Producers are in a much better position inventory wise this year compared to the previous year as China and India both signed agreements earlier in 2013. However, prices were higher at this time last year, at $500/tonne CFR in southeast Asia, up $50/tonne compared to $450/tonne CFR at present for standard MOP, and $520/tonne CFR in Brazil compared to $440/tonne CFR at present.
Delays in the start of the application season in the US, and resistance from buyers in southeast Asia and Brazil has added to the downward pressure on prices. It is now expected that prices in Brazil may also be revised upwards in line with the increase in southeast Asia. Brazilian prices are usually at a premium to Asia. The key question however remains if buyers will accept these prices given the weakness in fertilizer prices across markets.
Rebecca Clarke, Deepika Thapliyal, Sylvia Traganida, Meena Chauhan and Mark Milam contributed to this story
($1 = €0.78)
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