Global urea momentum unlikely to be sustained – US Cowen

HOUSTON (ICIS)–Although the global nitrogen market has seen increased momentum that has propelled US barge pricing and warehouse levels, research investment bank Cowen said on Wednesday that this uptick is unlikely to be maintained and that the market may experience a decline.

Looking at the higher prices for urea during the third quarter and into the early part of the fourth quarter, the firm said that prices were driven by outages and seasonal maintenance, combined with an early onset of demand from India.

At the same time, inventories were on the light side when the demand appeared. As such, rising prices created a bit of a buying panic and led traders to move product among themselves, which helped drive prices higher as well.

The firm said its outlook for the current quarter is that supply volumes will be returning to normal levels. There will be new capacity coming into the market, and the buying panic will recede.

If this materialises, Cowen said those conditions should lead to lower prices as the year comes to a close. This new downward momentum would spill into the first quarter of 2018.

Not forgetting that farmer decisions will impact market direction, Cowen did note that there has been a shift in the soybean/corn ratio, which could lead growers to postpone nitrogen application in the fall as they assess options for planting in the spring of 2018.

The hesitation and caution buying choices by farmers bears watching for the market, especially in light of the pricing for the two major crops remaining under pressure, and US growers looking at very large yields being tallied once harvesting wraps up over this month.

Cowen did acknowledge that recent pricing in the urea market “far exceeded our estimates” for the third quarter but said it does not believe that there has been any substantive change in industry fundamentals for 2018.

“Looking forward into H1 2018, we see average prices below those of H1 2017. We believe this will reverse in H1 2018,” said Cowen.