Players prepare for IFA conference in Montreal

Author: Richard Ewing

2019/06/07

LONDON (ICIS)--Ferraris and fertilizers do not usually have much in common, but both will hit Montreal's streets over the next few days as leading players in the crop nutrient industry prepare to follow in the slipstream of this year's Canadian Grand Prix.

The annual conference of the International Fertilizer Association (IFA) will be attended by around 2,000 delegates, including  manufacturers, traders and buyers of fertilizers from the agricultural and industrial sectors.

Held 11-13 June, the conference is the global industry’s showpiece event and a key platform for deals for products including urea, ammonia, phosphates, nitrates, sulphur and potash.

International urea prices have firmed on trader-led buying, with prices in the Arab Gulf, China, Black Sea and the Baltic increasing by $5/tonne.

Global prices are trading at a premium of around $25-30/tonne compared to mid-June 2018.

Prices have jumped, as Iran is no longer able to sell to India. This has made Indian buyers primarily pick up material from the Arab Gulf at higher levels. Chinese supply has also remained tight.

Despite recent price increases, the strength in the market is not yet convincing.

Iranian supply in Brazil and the re-emergence of some Chinese supply have kept prices subdued so far.

This week saw Chinese levels above $280/tonne FOB (free on board) from the mid-$270s/tonne FOB, as producers’ inventory levels fell after recent sales.

As for Iran, exports into Brazil and Turkey continue, with the US delaying the announcement of new and tougher regulations for Iran’s petrochemicals sector including urea.

Producers have also resorted to supply management, with Egypt shipping 90,000 tonnes to Brazil.

Some pick-up in demand has been seen recently in Central/Latin America and Australia, while India is expected to return with an import tender for around 500,000-700,000 tonnes in second-half June.

The main issue with the market is the disparity in producer and end-user ideas.

The Arab Gulf rallied to $280-285/tonne FOB but buyers in Brazil are not able to digest $285/tonne CFR (cost and freight) as they negotiate for lower prices with traders on the back of Iranian supply.

Europe is not in season, with the only business heard likely to be short covering, while the US continues to battle weather issues.

Sentiment in the international ammonia market remains bearish as the start of the third quarter looms, although prices appear to have stabilised in some parts of Asia-Pacific.

The partial settlement of the Baltic contract price by Yara and at least one Russian supplier for June loadings at a discount to May has also applied downward price pressure in the Black Sea.

Manufacturers either side of the Suez have yet to announce capacity cuts, but producers in higher-cost countries such as Indonesia may soon have no choice but to bring forward maintenance, or halt units to reduce the glut.

Strong import demand from Mexico and China absorbed some excess capacity during the first half of 2019, which reduced the impact of extremely poor autumn and spring ammonia application seasons in the US due to poor weather.

Iranian exports remain relatively healthy, although more material than before is heading to China, rather than to India, as US sanctions reduce some players' appetite for Persian Gulf product.

Sentiment in the phosphates market was soft this week in most regions, as most buyers are covered with product for the time being.

In India, the long-awaited NFL diammonium phosphate (DAP) tender is expected to offer some price direction to the market, as price offers have been opened this week and traders have offered product at lower levels.

Market conditions in India are not favourable due to the delayed monsoon and the high DAP inventories in the country, which are estimated at 4m tonnes.

So far, January-May DAP imports are heard to be 2.5m tonnes so there is no rush to buy, especially as importers are waiting to see if there will be a reduction in the fertilizer subsidies or the maximum retail price (MRP) by the new Narendra Modi administration.

Market players are also waiting for discussions to start on Q3 phosphoric acid contract prices in India between Moroccan titan Office Cherifien des Phosphates (OCP) and its customers.

There are expectations of a reduction, as raw materials and global DAP prices are down.

Chinese producers will focus on the export market as the domestic season is over and there is expected demand from India, Pakistan and Bangladesh.

West of Suez, the Tampa DAP price remains unchanged due to a lack of export business from US major Mosaic.

The domestic market is subdued due to a lack of demand, but there are expectations activity will pick up soon for the summer fill season.

Already, the DAP paper market has started trading at higher levels for the third and fourth quarters.

In Brazil, the monoammonium phosphate (MAP) market is stable, as buying interest is low and there is enough product in the market.

So far this year, Brazil has imported around 2.5m tonnes DAP/MAP/nitrogen, phosphorus, sulphur (NPS) with limited product coming from the traditional sources apart from the US.

Most producers are comfortable for June and are looking into emerging demand, like the Indian subcontinent and Latin America.

They are expected to focus also on the European market, as the buying season is about to start.

The global sulphur market is subdued ahead of IFA Montreal, amid the Eid ul-Fitr festivities and continued weak demand from the end-use phosphate fertilizers market.

No new deals were heard in the bellwether Chinese import market, but inventories continued to increase, largely due to ongoing arrivals at ports and reduced consumption from phosphate producers.

The Middle Eastern market has been particularly quiet in the days surrounding Eid.

Market participants will look to the monthly Muntajat tender in mid-June to ascertain pricing direction for the rest of the month.

India is still largely out of the sulphur market, due to a delayed monsoon season and high inventories of DAP fertilizers.

The market will look to the outcome of phosphoric acid Q3 settlements, as the price of the raw material will affect the cost of phosphate production.

This will, in turn, affect buyers’ decisions to source phosphates domestically or import from China.

The European market is stable, following the settlement of second-quarter contracts at a rollover in April.

The market is expected to remain this way until third-quarter contract negotiations begin at the end of this month.

Muriate of potash (MOP) fertilizer producers are exercising discipline on offer levels amid purchase tenders in Bangladesh and Indonesia, as the spectre of the industry's key India and China long-term supply contract talks loom.

In late May, state-run Bangladesh Chemical Industries Corporation (BCIC) closed its 29 May purchase tender for 300,000 tonnes of MOP, for July-October shipment.

The lowest offer was from Fertilizer House – an agent of Russian MOP major Uralkali – at $307.70/tonne CFR for 15,000 tonnes; some $23.76/tonne above the lowest offer for last year's annual Bangladesh MOP import tender.

Offer prices under fertilizer manufacturing and distribution firm PT Pupuk Indonesia’s 330,000 tonne standard-grade MOP import tender - which closed in the last week of May - were said to be around $30/tonne higher than those under last year’s national purchase tender.

“Producers want to give no indication of a potential decline,” says a market source. “They’re all showing firm discipline.”

The price agreed for the Chinese and Indian long-term import contracts are the MOP industry’s two key bellwether points, and are frequently referenced in trading elsewhere in the world.

There is talk that Chinese buyers will be in a good negotiating position for the 2019-2020 contract, owing to high inventories and steady deliveries under the previous contract.

A source at one European producer said Chinese buyers could drag negotiations out into the fourth quarter, thanks to well-stocked warehouses.

That could be a mistake, though, as last year Chinese buyers also attempted delaying tactics in an effort to secure a better deal.

As a result, India settled first at $290/tonne CFR for the 2018-2019 contract - an increase of $50/tonne on the 2017-2018 contract.

Chinese buyers were forced to pay an increase of $60/tonne to meet the same $290/tonne CFR price point.

It remains to be seen if history will repeat itself as producers and buyers prepare to accelerate talks at IFA Montreal.

Focus article by Richard Ewing

Additional reporting by Julia Meehan, Deepika Thapliyal, Sylvia Traganida, Andy Hemphill, Erica Sesay, Mark Milam and Annalise Porter

Photo of the LPG (ammonia) tanker Yara Freya courtesy of Yara.