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Fertilizer International 494 Jan-Feb 2020

31 January 2020

Market Insight

Market Insight

Historical price trends $/tonne

Market Insight courtesy of Argus Media

PRICE TRENDS

Urea: A mostly bearish market characterised by a general lack of demand prevailed during the fourth-quarter. European buyers stayed out of the market. Dry weather and low crop prices in Australia and Asia also hindered demand. Prices in Brazil have fallen by $50/t since September, due to delays to the safrinha corn planting season, although they did eventually bottom out at around $230/t cfr. India held several significant tenders in the fourth-quarter. These helped stabilise the market after three months of decline, even prompting small price rises in China and Egypt. US prices, meanwhile, have continued to trade at a discount for much of the last quarter. Supply into the US was boosted by a two million tonne increase in Chinese export shipments, compared to 2018, while Black Sea urea shipments into the country also rose by around 100,000 tonnes/month.

Phosphates: Prices fell throughout the fourth-quarter, linked to oversupply and a lack of demand. Production cuts at Mosaic’s Faustina plant in the US had little to no effect, with Nola DAP prices falling as low as $236/st f.o.b. in December. The Nola price falls had the added effect of dragging down Brazilian MAP prices as well. These bottomed out at around $277/t cfr – some $60/t lower than in September. Mosaic responded at the end of December by announcing further production cuts for the first-quarter of this year.

Falling DAP prices in China prompted the announcement of a collective cut in production at the end of December by the ‘6+2’ group of producers. Buying activity in India and Pakistan also died down as 2019 ended.

Australia has experienced weaker than usual demand because of extremely dry weather and wildfires. Unusually, this meant the country continued to export phosphates during the fourth-quarter, a time of the year when it normally becomes a net importer to satisfy domestic demand.

Potash: Prices have now been in retreat since November 2018. While high inventories have led to oversupply, production cuts to counter this were only implemented at the end of third-quarter. At the same time, demand has fallen due to a combination of low crop prices, relatively high potash prices and adverse weather. Demand in five of the top six buying-countries has been negatively affected by additional factors such as the poor US spring season and the US-China trade war. African swine fever has also hit hog herds in China, reducing both soybean demand and potash sales.

Sulphur: The sulphur market was very bearish during the fourth-quarter, the result of both market oversupply and a particularly weak downstream phosphates market. Consequently, prices hit record lows in both the spot and contract markets. Chinese port stocks remained at their highest levels for six years, exceeding 1.5 million tonnes at one point, allowing buyers to stay out of the cfr import market. The weak phosphates market has lowered production in northern China, hurting sulphur demand. Sulphur suppliers attempted to sell December product early. But lack of availability pushed prices back up in the Mediterranean region and almost completely halted business in India. First-quarter contract negotiations have now started with significant quarter-on-quarter price drops looking likely. Traders secured tonnages from Adnoc in the high-$30s/t f.o.b., for example, down $13/t on the last quarter. OCP, meanwhile, settled with Adnoc below $60/t cfr, following no agreement in the fourth-quarter. Fundamentals are better in Western Europe’s molten market, though, where tighter supply suggests a flat-to-firm outlook.

Market price summary $/tonne – Early January 2020

MARKET OUTLOOK

Urea: The Asian market is turning bearish, now that volumes are in place to cover awards to India, with traders starting to sell short again. With the outlook looking flat to bearish, low Asian demand is likely to drag down Middle East urea prices. The market west of Suez is firmer but likely to come under pressure too. Any price recovery in the US looks vulnerable to incoming cargoes.

Phosphates: With most major producers announcing production cuts at the end of last year, the phosphate market enters 2020 slightly more balanced than it was in 2019. But demand in most key destination markets is still weak, and stocks in India and Pakistan remain high, resulting in a soft outlook for the first-half of 2020.

Potash: Argus expects potash prices to begin to flatten out at some point in the second-quarter, once production cuts have been given time to take effect and supply rebalances with demand. Prices should then stabilise in the second-half of 2020, buoyed by a need to restock after purchasing cuts in 2019. Fundamentals are also showing positive signs, in terms of both crop prices and long-term potash demand growth. Potash prices are, however, unlikely to rise while affected by adverse weather conditions and with economic slowdowns hampering demand. New muriate of potash (MOP) entrants face the challenge of capturing market share in a fundamentally oversupplied market.

Sulphur: Prices are holding steady with most cfr spot levels above $60/t. Because larger sulphur consumers are mainly covered, aside from pockets of demand in Indonesia, Bangladesh, Jordan and Argentina, the impact of fertilizer production cuts will weigh on prices. In China, high port stocks and cuts in phosphate production will keep buyers out of the market, while production cuts in North Africa will also mean lower levels of demand. Middle East producers kept their monthly prices flat as the year began. Concerns about freight rate increases also persist due to the new IMO 2020 regulations and geopolitical tensions. Black and Baltic Sea ports may face freight rises if ice restrictions are implemented there.

Latest in Outlook & Reviews

Price Trends

Global sulphur prices were mostly assessed flat in mid-January, with only slight changes for China, Indonesia and India, while the first quarter contracts for the Middle East, North Africa and Tampa increased from the previous quarter. Overall, the number of transactions taking place globally has declined as subdued demand has limited trading activity in most delivered markets. The current sulphur price environment has been shaped by the combination of rising Chinese demand and higher Middle East f.o.b. prices in the second half of last year. As a result, some consumer markets such as Indonesia and India have been subject to upward pressure in order to remain attractive destinations. But demand remained lacklustre across delivered markets, leaving prices relatively stable.

Protectionism casts a shadow over the new year

The start of a new year is a traditional time to take stock of the previous 12 months and look ahead to the next. In this regard, CRU’s most recent annual client survey, conducted at the end of December last year, makes interesting reading as to your own concerns for 2025 and beyond. There were numerous responses across commodity and financial sectors, and broadly based worldwide, if slightly skewed towards Europe and North America, but across all of these the key worry for the coming year clearly emerged as trade tariffs and protectionism. This is perhaps unsurprising, given incoming US president Donald Trump’s avowed intent to impose blanket 20% tariffs on all goods entering the US, and up to 60% on China. While most clients did not think tariffs would rise as much as some of Trump’s rhetoric might suggest, most expect rises of 5-10% across the board, and Asian businesses are most concerned. CRU’s most recent position paper on US tariffs highlights some of the internal political and legal challenges in implementing these, but does acknowledge that some rises will be inevitable, and may well produce the kind of reciprocal measures last seen in the previous Trump administration’s trade war with China and the EU in 2018.