Road to Morocco a rocky one for fertz producers ahead of IFA 2017

19 May 2017 15:50 Source:ICIS News

LONDON (ICIS)--The ancient Moroccan city of Marrakesh is the host of this year’s annual conference of the International Fertilizer Association (IFA), with around 2,000 delegates set to descend on North Africa in the next few days.

Local phosphates giant Office Cherifien des Phosphates (OCP) is one of the main sponsors of the 22-24 May event, and the industry titan will be hoping the recent decline in nitrogen fertilizer prices does not spread to its product portfolio.

Ahead of the conference, news of an import tender from India and higher prices in Egypt lent some optimism to an otherwise lacklustre and weak urea market.

The market for the most popular fertilizer looks ready for a temporary bounce but the general opinion is that the recovery will be short lived and largely due to short covering with prices expected to decline again in the summer.

Prices in most origins are still depressed, with spot deals from the Arab Gulf concluded in the $187-190/tonne FOB (free on board) range late last week/early this week for Latin America and Australia. However, Arab Gulf prices are expected to improve ahead of the Indian tender.

Prilled urea prices in Russia are the lowest in the world, but the Indian tender may give Baltic suppliers an opportunity to offload June supply.

The Indian tender will also suck up liquidity from Iran, with an up to 400,000 tonnes likely to be offered from the Persian Gulf.

Brazil is still under pressure but offers were quick to shoot up this week following the announcement of the Indian tender.

Price levels in the US barge market are also improving as the weather there gets warmer although demand is still slow.

China continues to buck the weak trend on domestic demand, low operating rates and some short covering. There is even talk of China importing urea soon given the difference in local and international prices.

From a producer point of view, things were even worse in the ammonia market this week, as prices plummeted in most regions due to agricultural and industrial users being unable to absorb so much excess material.

A series of striking spot deals sent the market into a spin and left some players scratching their heads about the huge discounts.

Described by one leading supplier as a "shambles", the price crash was set in motion in Asia Pacific where Mitsubishi sold 6,000 tonnes to Korea's Namhae at $294/tonne CFR (cost and freight) Yeosu – down almost $100/tonne on recent contract deliveries.

Around the same time, Trammo sold a similar volume to Sumitomo Chemical in Japan at $319/tonne CFR Niihama, with the trader saying the buyer’s aggressive price target was reluctantly met to protect market share.

The momentum rapidly spread west and Mitsubishi was again involved as India's Coromandel International Limited (CIL) secured 15,000 tonnes of undisclosed origin at $305-310/tonne CFR Kakinada/Vizag.

Over on the west coast of India, Zuari/Goa will shortly receive a parcel of Saudi material from Trammo priced at $340/tonne CFR under an older deal.

With the trader confirming it will source that cargo and the one for Sumitomo from the Middle East, the low-end of the Arabian Gulf price range fell by 25% to $260/tonne FOB on the two netbacks.

Not to be outdone, Mosaic secured a 23,400-tonne cargo from a mystery supplier at $260/tonne CFR Tampa for second half June arrival, down $70/tonne on its May contract price with Yara.

The surprise move by the US phosphates giant will put the buyer in a strong position for imminent talks with Yara over next month’s Tampa contract settlement.

The supply glut is expected to have repercussions for Odessa Port Plant (OPZ) in Ukraine, with the Black Sea producer likely to halt production shortly.

The Indian subcontinent continues to support the soft phosphates market for another week, as most of the buyers globally remain on the sidelines ahead of the IFA conference.

In India, RCF has issued a few monoammonium/diammonium (DAP/MAP) phosphate fertilizers tenders and their awards are expected to offer some price direction to the market.

Indian buyers do not seem willing to accept DAP prices over $360/tonne CFR, with suppliers talking prices in the mid-$360s/tonne CFR.

On the other hand, the cost of production of DAP is expected to decrease as ammonia prices have plummeted and it remains to be seen whether it will be cheaper to import product or produce it domestically.

Meanwhile, Pakistani buyers have returned to the market for product and some have agreed Chinese DAP cargoes already and there are expectations of more purchases once the new budget is announced end May.

In China, DAP offers remain unchanged, with producers starting to focus on the export market as the domestic season is over. Production rates at domestic DAP/MAP plants remain reduced, as the government is cracking down on environmental pollution.

DAP demand from India and Pakistan will offer a chance to Chinese producers to compete for business, especially as other suppliers keep their offer prices high.

West of Suez, the Tampa DAP price remains stable due to a lack of business from Mosaic and subdued global demand. North America is entering its quiet period of the year and prices are expected to stay at low levels.

In Brazil, the MAP market seems to have reached a bottom, as there are offers in the market at higher levels but no business has been confirmed this week.

However, political unrest in the country could cause a depreciation of the real and mute the appetite for fertilizer purchases.

In the sulphur market, low refinery run rates caused tightness in China and parts of the Mediterranean, while storms in Russia limited river navigation and volumes from the Black Sea.

Additionally, there was unconfirmed talk that a major Middle East sulphur supplier was unable to supply agreed volumes to OCP, causing it to enter the market looking for material, further limiting availability.

Additional capacity has also increased the pull on material from North Africa, further restricting supply.

The sudden tightness in availability had not been expected in the market, instead, greater availability had been forecast because of low demand in China, and the resolution of production problems that had restricted supply in the first quarter.

With Russian river navigation reopening around a month earlier than usual following the winter freeze, and Gazprom having had no material available in the first quarter, and production problems in the Middle East resolved, second-quarter supply was expected to lengthen substantially.

As a result of the unexpected shortage FOB spot prices in the Middle East rose significantly. China and Mediterranean CFR prices also firmed, but not to the same degree, while Indian prices remained unaffected – which weakened netbacks from the Arab Gulf to China and India.

Freight rates across the globe have broadly risen across the last year, which contributed to the negative netbacks.

The price rises in China and the Middle East came despite low underlying consumption in China amid the low-season for phosphates.

Phosphates production rates remain limited by the off-season, and with India increasingly relying on domestic phosphates production, there remain question marks in the market as to how strongly demand will return when the season begins anew, and this has caused some to suggest that price hikes will be temporary.

In the potash sector, a flurry of tenders from south Asia was the main activity this week, with little progress on China contract negotiations and prices stable in all regions.

The Bangladesh Ministry of Fertilisers issued a purchase tender for 300,000 tonnes of muriate of potash (MOP), closing on 31 May.

On the production side of the market, Belaruskali announced it will conduct planned maintenance at its number one unit in July.

While Russia’s EuroChem said it is on track to begin production in its Usolskiy mine during Q4.

No update was heard on China contract negotiations, with an outcome unlikely now until June.

Additional reporting by Julia Meehan, Deepika Thapliyal, Sylvia Traganida, Kate Wilcock, Mark Victory, Mark Milam and Annalise Little

By Richard Ewing