Nitrogen fertilizer demand down ahead of Sydney IFA conference

23 May 2014 10:44 Source:ICIS News

Sydney Harbor BridgeLONDON (ICIS)--The 'Road to Oz' is not presently paved with gold for urea and ammonia producers, as market sentiment remains bearish heading into the annual conference of the International Fertilizer Industry Association (IFA), which gets underway in Sydney, Australia, on Monday.

Ample supply and a lack of demand is weighing on the market and putting downward pressure on nitrogen fertilizer prices, which looks set to continue over the coming months.

For urea, demand from major markets is slow for the time being. India is not expected to seek more urea until June at the earliest given sufficient stocks and delayed demand following rains in March/April.

At the same time, stocks are building at Chinese ports ahead of the low export tax window opening on 1 July. Current estimations are in excess of 1m tonnes.

Other buyers, sensing that prices will be lower once the Chinese export window opens, are also deferring purchases until July, leaving little prompt demand.

Production cutbacks in Ukraine due to ongoing geopolitical tensions are tightening Yuzhny availability next month. While producers are looking to hold prices at higher levels as a result, a weak global market is keeping prices under downward pressure. Yuzhny tonnes will also have to now compete with Chinese and Iranian granular urea in traditional market Turkey.

There had also been expectations that Turkey might provide an outlet for Egyptian urea once European demand slowed, but this now looks unlikely. Egyptian prices are also weakening on a lack of demand at present, as are granular prices from the Middle East.

The urea market was also looking weak at this point last year, although prices were at higher levels. Current Yuzhny prices are reported in the $285-300/tonne FOB (free on board) range, compared to around $340-350/tonne FOB last year. Meanwhile, Middle East and Egypt prices were some $70-75/tonne and $45-50/tonne higher, respectively, in May 2013.

In contrast to last year, the gap between prilled and granular prices has now practically disappeared and granular cargoes are now being offered in several markets at a discount to prilled.

Meanwhile, the benchmark Black Sea ammonia price is facing significant downward pressure for June cargoes after Koch this week agreed a deal for 40,000 tonnes of Baltic spot ammonia at around $470/tonne FOB – a level that would indicate a Yuzhny price of around $460/tonne FOB versus May's $500/tonne FOB level.

While leading supplier NF Trading is understood to be maintaining a price idea at the same level of recent Yuzhny business, last week's settlement of the June Tampa price at $540/tonne CFR (cost and freight) – down $40/tonne from May is a further sign that buyers hold the upper hand ahead of forthcoming negotiations at the IFA conference in Sydney.

Further pressures is also being created by a steady flow of cargoes from North Africa which has prompted OCP Morocco to purchase 40,000 tonnes of Algerian ammonia from Sorfert rather than repeat recent business with NF Trading in the Black Sea.

In an attempt to give support to prices, Odessa Port Plant (OPZ) is considering shutting down one of its ammonia units in early June and NF Trading is reviewing its production schedule which may see it take additional units offline following recent plant shutdowns in eastern Ukraine.

East of Suez, Mitsubishi this week agreed a deal with an undisclosed producer – most likely Yara – for two 23,400-tonne spot cargoes to South Korea and Taiwan, where downstream caprolactam (capro) and acrylonitrile (ACN) plant turnarounds and poor market conditions continue to keep most spot buyers on the sidelines.

In the Arabian Gulf, SABIC is heard to have several spot cargoes available for loading in June but the producer’s price idea of $480/tonne FOB has been rejected, meaning the Saudi supplier's best option may be to arrange swaps with Qatar's Muntajat which is short due to a fresh unplanned shutdown of the recently-restarted Qafco VI plant.

In India, spot demand for ammonia remains subdued and Fertilisers and Chemicals Travancore Ltd's (FACT's) 21 May tender for 7,500 tonnes for June arrival in Cochin attracted only one offer - from Transammonia (Trammo) at $535/tonne CFR. The group has yet to make an award, but Trammo has been awarded by CJ Indonesia at $545/tonne CFR under its 15 May tender for a 6,000-tonne June cargo.

The global phosphates market remains subdued following the opening of the low export tax window in China on 16 May. Since that key date, there has not been an influx of business to India as buyers are in no hurry to make purchases.

Indian demand is mostly covered with high stocks and previous purchases and Indian buyers can afford to wait until June to get back into the market. In the meantime, Chinese producers are heard to be focusing on monoammonium phosphate (MAP) sales to Brazil.

All eyes will be on India from now and on the award of the RCF diammonium phosphate (DAP) tender which is expected to offer a clearer indication on pricing. Also, following the Indian elections attention will be drawn on the new government and whether they will make any changes on the subsidies.

Demand in India will be expected to support the market ahead of the start of the monsoon season in June.

West of Suez, the outlook in the US is reported to be weak and prices are expected to be under pressure with product arriving from Morocco for PCS, Helm and Koch which will oversupply the market. Tampa prices are understood to be edging downwards following a Mosaic formula sale to Latin America.

It remains to be seen whether and how much the US will export to India this year, with discussions expected to take place during the IFA conference next week.

Barge trade is reported to be limited, as buyers prefer to make hand-in-mouth purchases from warehouses.

On the production front, the DAP/MAP situation is reported to be steady in North Africa, with various outages elsewhere and Russia’s PhosAgro focusing on NPK/MAP production. Product from Saudi Arabia, Jordan and Morocco is expected to compete in India with Chinese and US imports.

The calm in the potash market over the last few months is in sharp contrast to last summer when prices crashed 20-25% across the world following Uralkali’s decision to exit its joint venture with BPC.

Prices have stayed stable since the beginning of the year following the signing of first-half contract cargoes in China but are still sharply lower when compared to a year ago. The first-half contract price in China was fixed at $305/tonne CFR in January, down $95/tonne from the previous price of $400/tonne CFR.

Brazilian demand has remained strong this year with deliveries in January-April increasing by 8% over last year due to higher demand for corn, cotton and soyabean crops.

The price for standard muriate of potash (MOP) is around $350/tonne CFR and suppliers are targeting a $10/tonne increase in June.

However, there are some concerns that demand may start easing as there are ample stocks in the country. The sharp decline in urea and phosphate prices has also led to some concern that other crop nutrients like potash will also follow.

Southeast Asia remains the most challenging market for suppliers, and prices for standard MOP were reported in the $300-350/tonne CFR range which is down sharply from $450/tonne CFR in May 2013.

On the positive side, availability of granular MOP remains tight and this has kept prices firm, especially in Europe in the €285-295/tonne FOB range.

Sulphate of potash (SOP) supply is also limited due to production issues across regions, and suppliers are still struggling to fulfil commitments. This has kept prices firm, reported at €410-420/tonne FOB in northwest Europe this week.

So while potash prices have clearly found a floor and are not likely decline from current levels, the current market environment makes it difficult for suppliers to achieve prices leading to expectations of a flat trend in the medium term. Any possible reconciliation between Uralkali and BPC will however be a positive trigger for the market and could provide further stability to the market.

After falling on a weekly basis since early February, sulphur prices have finally found some stability, with the first upward gains seen during the first half of May on glimmers of renewed buying interest in China.

However, the buying interest has been far from dramatic, with demand from downstream phosphates not as strong as some had expected leading up to the export tax window.

While Middle East producers described their stock positions as sold-out or very low - Improved availability and logistics in Russia and Canada have contributed to the steadier mood of the market.

The international sulphur market has been likened to a coin on its side, with the potential for it to fall either side moving into the third quarter.

Some sources believe the only factor supporting prices will be from Chinese speculators, while others said delays in new capacity start-ups, such as the Shar gas project in Abu Dhabi and Kashagan in Kazakhstan will mean that continued low demand will be countered by steady or less availability than originally forecast during 2014.

Rebecca Clarke, Deepika Thapliyal, Sylvia Traganida, Julia Meehan, Kate Wilcock, David Tonyan and Mark Milam contributed to this story

By Richard Ewing