No respite for urea suppliers as prices continue to slide

01 December 2017 13:30 Source:ICIS News

UreaLONDON (ICIS)--Global urea prices continue to fall with levels in most regions touching three-month lows this week.

However, there is a growing feeling that the price fall of around 25% over the last two weeks has come too soon and too quickly and the market is now approaching its bottom.

"I think we are close to touching the floor. And [buyer] interest will pick up," said an African producer.

Others were not so certain.

"We don’t know how to identify the bottom. If there is new demand from India maybe this [decline] will pause for a while. But after that [Indian] demand is met, what happens? Demand [elsewhere] is not good enough," said another producer based in eastern Europe.

News of Chinese imports lent some support to sentiment even as many questioned reports of an Arab Gulf cargo moving to China. While clarity on Chinese imports is awaited over the coming weeks, it seems likely that exports from China will continue to diminish as operating rates drop further.

Chinese exports of urea in January-October have fallen by 52% year on year to 3.7m tonnes compared to 7.8m tonnes in the same period last year, according to data from GTIS/China Customs.

Meanwhile, imports moved up 77% to 114,562 tonnes with most of the volumes arriving from Iran earlier in the year.

There is also talk of reintroduction of an export tax in China in 2018 while a major environment tax has also been levied from 1 January 2018.

"China is short 3m tonnes of urea. And they won’t be an exporter until prices go up to $270-280/tonne FOB [free on board] again," said a southeast Asia-based trader.

Others are still evaluating the situation in China. Many questioned reports of an Arab Gulf cargo moving to China given the high FOB price of the deal. They speculate this cargo may be for re-export in small lots to southeast Asia or may even end up being shipped to India instead.

"The China news on imports is bogus I think, but can’t really tell right now," said an international trader.

There is talk this week of 50,000 tonnes of Omani material being purchased this week at $225/tonne FOB by a trader for China as well as some Iranian material being sold to China in the low-$230s/tonne CFR (cost and freight).

In end-user markets such as Brazil, prices have come down sharply. Business has now been concluded in the mid-$220s/tonne CFR for granular urea, a drop of $13/tonne since earlier this week. This has pressured Arab Gulf prices as well.

Egyptian suppliers have accepted lower levels and most of them are now believed to have sold significant quantity for December although details are not available. Latest business is around $219-220/tonne FOB Egypt.

There is talk of positions being taken for Europe but the size of these trades could not be confirmed.

As for the US, it is closely tracking international news and continues to remain volatile with barges touching fresh lows this week.

The Indian tender still eludes the market, although there is speculation an import tender may be announced by next week, likely during the FAI conference. Iran is expected to be a key player as always. With the latest Iranian business in India at $247/tonne CFR, levels under a new tender are expected to be lower.

India scrapped a major import tender earlier this month, triggering a collapse in international prices.

Picture source: Yara

Focus article by Deepika Thapliyal

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By Deepika Thapliyal