TFI '19: Urea market outlook a head-scratcher despite big Indian purchase

Author: Deepika Thapliyal

2019/09/20

LONDON (ICIS)--The Indian urea tender has had a stabilising effect on global prices, with MMTC absorbing almost 950,000 tonnes of the world’s supply until mid-October.

- MMTC purchase lends support

- Chinese supply limited for now

- Freight costs up on Saudi attack

The volume purchased was above expectations, and so were the offers on a cost and freight (CFR) basis although the Arab Gulf offer, at $254/tonne FOB (free on board), was lower than expected.

The tender saw a good response as sellers were keen to sell with demand lacking everywhere else.

“We are not positive on this market but not negative either. Too many elements are changing,” said a trader.

China has been an exception with its participation in the Indian tender restricted to around 100,000 tonnes this time compared to 850,000 tonnes in the last 1 July tender.

This is because of expected production cuts ahead of the National Day and Golden Week celebrations (1-7 October).

Beijing is keen to keep skies clear for celebrations planned on 1 October for its 70th National Day.

“No trader will take a risk in China after what happened in the last tender,” said a trader.

Traders incurred heavy losses on shipments from China to India in the previous tender because of contracts being renegotiated and logistical issues.

Margins for the current tender are also thin, with freight costs unexpectedly increasing because of the Saudi drone and missile attacks on 14 September.

The broader market is also seeing other challenges such as volatile exchange rates and political unrest in several regions, at a time when demand is thin and oversupply persists.

The next round of global urea purchases is expected in second half October-November with Brazil being a key focus.

“At the moment it is difficult to say where this market is going. India bought a lot. And we didn’t expect Brazil to go up so if that continues market will firm,” said a trader.

The next Indian tender is already eyed with talk emerging it could be announced in mid/late October ahead of Diwali holidays (27 October).

India is likely to buy at least another 600,000 tonnes in its next tender.

As for the US , lack of nearby demand and international concerns have seen the market meander over the last few months.

Barge levels in New Orleans increased to the mid $250s/short ton FOB Nola this week tracking the improvement in global sentiment.

Discussions at The Fertilizer Institute (TFI) conference next week may provide some colour on future demand prospects and the volume of imports expected into the US for the rest of the year.

The TFI conference runs from 23-25 September in Chicago.

Focus article by Deepika Thapliyal