India poured cold water on the market during November bringing the run up prices to a halt. The third week of November’s euphoria subsided into the fourth week’s hangover in the urea market, proving again that the cure for high prices is high prices.
The $40/t jump in prices sowed the seeds of its own demise in the Indian urea tender. Coupled with a troubling slump in sales in India, the price rise was sufficient to persuade the Indian government to scrap the STC tender and put 800,000t of urea back into suppliers’ hands.
Although much of this urea would not find its way onto the open market, the move was sufficient to prompt a sharp reversal in prices in several countries, notably the US and Brazil.
US prices fell back into the $220s/st fob Nola for December, falling about $15/st from the third week of November. Arabian Gulf granular urea traded down into the low-$220s/t fob on the paper market for January. In Brazil, traders began to take the profit on long positions rather than hold out for prices above $250/t cfr, and sold in the low-$240s/t cfr.
Where do we go from here?
Fundamentally, the factors that were driving prices higher have not changed. Chinese production remains low, its urea plants operating at an average of 52pc. Coal prices have peaked and turned down slightly in China, but production costs remain high.
Exports have plummeted. Shipments fell to a six-year low in October, totalling just 330,000t to all destinations. Chinese suppliers did not expect exports to rise in November or December and full year exports are likely to be below 9m tonnes; 5m tonnes lower than in 2015.
The US market appears short of urea for spring 2017 and will need to import substantially January-March. European and Turkish buyers also need to purchase for spring.
With the exception of Iran, granular urea producers worldwide were well placed for December, having sold most of their output. Traders took long positions and had an interest in maintaining prices.
So the answer to the question is, probably, a little lower in some markets before prices stabilise. The price increase in the third week of November was too rapid and a correction needed.
The ministry of agriculture informed urea producers that they would have to supply 34,000t/month from each line of production, starting from December and running through April, equivalent to about 60pc of production. This would apply to all Egyptian producers, who operate some 11 urea units in total. The ministry requires about 1.5mn t for the local market.
But prices have still not been agreed, and the devaluation of the pound since the free float in early November made setting a domestic price equivalent to exports more difficult. OCI was to load 50,000t of granular urea in Adabiya in late- November for shipment to the US Gulf. The urea was to be sold via OCI's own distribution network in the US.
Abu Qir held a sales tender on 22 November for 10,000t of prilled urea for 28 November-7 December loading. Ameropa bought the cargo at $236/t fob and sold it in Turkey. Abu Qir was to hold a sales tender on 29 November for 15,000t of granular urea for shipment up to 25 December.
Prices for Egyptian granular urea escalated through the third week of November. On 14 November, OCI sold 40,000t of granular urea at a price netting of $248/t fob to Damietta for prompt shipment to the US. Freight to Nola was estimated at $12-13/t to Nola. On 15 November, Mopco sold 25,000t at $250/t fob for second half December shipment and then another 10,000t at $260/t fob for end-December loading.
AOA confirmed that the second granular urea line at its complex in Algeria began production in early November and that it had two urea lines running at a reasonably high level of capacity. This was the first time that AOA has run both lines continuously for an extended period. At capacity, the two plants can produce 7,000t/day of granular urea.
Trammo fixed a vessel at $14.50/t to load 30,000t of granular urea prompt in Onne for Fairless Hills, US east coast. Keytrade had 30,000t to load in first half December, reportedly bought in the mid-$240s/t fob.
Indorama was to negotiate its remaining December tonnage in the first week of that month.
Sofitex awarded its 3 October tender for 40,000t of urea. Toguna was reported to have taken 30,000t of the award, Agro West 7,000t and Sogefert and local companies the balance. The price was understood to average about CFA 230,000/t ($376-377/t) ddp Spfitex stores, including 90 days’ credit after delivery.
Nitron was to load 25,000t of prilled urea in Kotka in mid-December for shipment to Abidjan, for onward delivery to Mali/Burkina Faso.
Chinese DAP prices remained firm in the face of near-nonexistent DAP demand, especially on the Indian subcontinent. Chinese producers remained defiant basis lower production rates, high production costs and some movement to the domestic market. There was no pressure currently to export.
However, one of the pillars supporting the recent run up in prices had been heavy late-season demand in Pakistan, but that need had been satisfied with one additional sale reported the fourth week of November ex-Ma'aden to Engro at the prevailing $320/t cfr. With India still absent due to an increasingly complex set of circumstances - high stocks, an uncertain monsoon, a weakening rupee and a lack of farmer credit - Chinese prices might be high but there was nowhere on the planet these fob levels were workable.
The other factor that stifled liquidity was the expectation that China was to announce imminently a cut in/removal of the Chinese export tax. Producers in China have hunkered down, notionally not offering until 1Q 2017 shipment, or satisfying themselves with moving tonnage into the domestic winter fill programme where prices were higher.
On a positive note, the Australian Q1 demand scenario was exceptionally good thanks to decent rains. Ma'aden reported a DAP/MAP formula sale to 'Oceania' while there was talk of more Chinese material having also moved. But for now, the real action was expected in January.
The Kenyan tender for 50,000t DAP which closed on 18 November was reported to have once again been postponed. The number of offers were unknown, but some technical evaluation work had been completed.
GCT was understood to have sold 6,000t DAP to Turkey for November shipment at a formula price.
GCT Tunisia November commitments ('000t)
L/cs opened under the Ethiopian tender which was good news for OCP. The first vessel under the almost 600,000t award of NPKs was to load in the third week of November with a second during 25-30 November. This theoretically left 200,000t to load in December if OCP was to meet its 300,000t 4Q obligation.
Crucially OCP confirmed it would cut output to 520,000- 550,000t for November-January citing rolling maintenance programmes at most units apart from the dedicated African facility. OCP insisted this was not market related in any way. Indeed, with November already sold out, there was little available for December with loadings as follows:
90,000t NPKs Nigeria, Burkina Faso, other African markets
25,000t MAP Mali (a second cargo following the same volume that was moved in November)
100,000t NPKs at least for Ethiopia
50,000 - 60,000t phosphates to the US
80,000t domestic markets
100,000t DAP/MAP Europe sold in a $335-345/t fob range
This left around 60,000-80,000t MAP to negotiate in Brazil. Asking prices reflected $335/t fob but this was not achievable in the current climate.
The market remained steady in the fourth week of November with prices in major regions all unchanged, aside from a $2/t drop in the US. Demand continued to fall in Brazil and the US, and pricing in southeast Asia was complicated by fast-moving exchange rate fluctuations against the US dollar.
In the fourth week of November, BPC signed a memorandum of co-operation to supply China state-owned CNOOC subsidiary CNCCC with 500,000 t/yr of potash for three years, starting next year. Prices were not discussed, and the agreement was more of a political statement than a firm contract. But the announcement comes at a time when supplier focus is already turning to 2017 contract negotiations with the Chinese consortium of buyers, which CNOOC is a part of.
K+S said it would be restarting its 850,000 t/yr Hattorf site, after rainfall in Germany increased water flow levels on the Werra river. But the resumption of potash production at Hattorf was delayed because of a fire on 25 November. K+S expects that repairs will take three to four weeks, during which time production cannot be resumed.
PotashCorp will cut MOP production across three smaller Saskatchewan mines in 2017 as the company adjusts to increased output at its expanded Rocanville facility. The company's 3.8mn t/yr Lanigan mine will enter a six-week production curtailment in January 2017, while the near-4mn t/yr Allan mine will go through a 12-week curtailment beginning in February 2017.
Nitron sold 25,000t of granular MOP for shipment to West Africa to an unnamed buyer. Freight costs from the Baltic to the region were around $31/t.
OCP was reportedly in the market for 20,000t of standard MOP, for its heavy line-up of planned NPK production. OCP sold 75,000t of 15-15-15 and 20-20-0 to Nigeria in November. The 15-15-15 nets back to $227/t on an fob basis, with freight at $13/t.
Source: Argus FMB
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