DTN Fertilizer Outlook

Most Domestic, World Prices Weaken in September

New Orleans, Louisiana, (NOLA) urea barges traded thinly through September, and prices drifted lower from $184 to $193 early to $181 to $188 late. NOLA DAP barge prices were also in decline, faced with excessive quantities of imported material coming in at the last minute. (Chart courtesy of Karl Stenerson)

AMMONIA

World ammonia prices fell in September. In Yuzhnyy, former Soviet Union (FSU), export tons were $20 lower than in August, crossing at $170 to $175 per metric ton (mt). (All prices in this column are wholesale.) Middle East prices fell from $200 to $255 mt early to $145 to $190 mt late. Yara and Mosaic settled their October contract for deliveries into Tampa at $210 mt cost and freight (cfr), down $30 from September.

The Yara Pilbara plant in Australia, which went down in early August, came online mid-September. Also Ma'aden, Saudi Arabia, officially announced completion of construction at its new 1.1 million metric ton per year ammonia plant. September production from the new plant turned out to be higher than many market participants expected, which put significant downward pressure on ammonia prices. There are reports suggesting output at the Togliatti-Azot, FSU, plant may be reduced in the near future and there will be a three-week turnaround at Uralchem's Berezniki ammonia plant, which will remove 20,000 to 25,000 mt of merchant ammonia from the market.

On the demand side, in Europe, BASF announced this week it will reduce its caprolactam production by 100,000 mt to around 400,000 mt over the next 18 months, which will reduce ammonia import demand. In Morocco, OCP has reportedly started granulation at the JPH-2 plant, which is expected to increase ammonia consumption.

The short-term outlook for world ammonia prices remains weak. Expected cutbacks by Russian producers could help stabilize the western market somewhat in the short-term, but until then, the outlook remains soft.

Domestically, buying interest for direct application ammonia has continued seasonally slow. Interior prices have been mostly flat, however, cash prices in central Illinois moved lower through September, down from $385 early to $365 late, and prepay prices were slightly lower at $400 to $405 per short ton (st). Overall, ammonia demand for the winter wheat pre-plant season has been relatively subdued, with lack of buying interest attributed to low wheat prices and poor weather conditions. Despite slow interest, the quantities being sold were enough to support prices in the Wheat Belt at levels equal to August.

It was announced on Sept. 29 that the IPL ammonia plant at Waggaman, Louisiana, is complete and currently undergoing performance testing. OCI at Wever, Iowa, is taking barges of ammonia and priming that plant with ammonia production expected in October. Downstream production of urea and UAN is expected sometime in November. With new production on the horizon we expect short-term domestic ammonia prices to run flat to lower.

UREA

World urea prices showed signs of strength through September. Yuzhnyy prilled prices edged up to $193 early, but prices moved to the $185 to $187 range by month's end, still up from the $175 to $181 seen in late August. Baltic numbers headed back toward $180 fob. In Turkey, Egyptian tons have secured fresh business at close to $190 fob (free on board -- the buyer pays for transportation of the goods) for its duty-free material. The Middle East granular price was flat to slightly lower through September with the range moving from $178 to $196 to $173 to $196.

Last week MMTC, India, made awards close to 1 million metric tons on their late-September tender for 1.5 million mt urea. Most of the tons will be sourced from Iran and China. Roughly 2.8 million mt were offered with prices $9 higher than last time. The lowest offer came in at $203 and the majority of tons were around $205. The prices are a few dollars below the $195-plus producers in China were holding out for, but traders feel this price will be achievable to secure sales for October and to clear some inventory. The Iranians should be delighted with the improved netbacks from the last tender and to underline the slightly firmer tone in the region, the Omanis secured as high as $196 fob to place October volumes.

Conversely, Egyptian prices weakened a few dollars, but at the new level of $191 fob, considerable volumes were purchased. Increasing supply from Egypt and Algeria as Sorfert comes back on stream was of some concern, but some believe the floor has been found and the next sales could be at a higher price. For the short term, we look for world urea prices to be stable to slightly firmer.

NOLA urea barges traded thinly through September, and prices drifted lower from $184 to $193 early to $181 to $188 late. Prilled urea barges continue to command a premium, with prompt selling at $203 to $205 st.

From concern about oversupply, some in the U.S. market now fear it could suffer from reduced imports. Some put the shortfall at 1 million tons. The main concern seems to surround the new plant at Port Neal, which reportedly CF will not fire up until Q1 2017. There was a rally of sorts in late September with November/December NOLA barge values commanding a higher price than prompt/October. Prices, however, still trail behind the international market and some further improvement is needed to attract more imports, especially as Brazilian prices edge up amidst talk of strong import demand for Q4 that could amount to over 1 million tons.

Volumes of urea going to wheat pre-plant in western Kansas, western Oklahoma and north-central Texas were less than expected as low wheat prices and poor weather conditions have slowed farmer buying interest. Wholesalers in the area have reported light-to-moderate volumes being sold mostly for pasture work, not so much for wheat pre-plant. Interior prices for September were generally down by $5 to $15 on slow demand. There could be a rally as we approach river close, but at the moment, it is expected to be a minor event compared to previous years. All eyes will be on CF next month to see if the Port Neal plant fires up as anticipated. The potential availability of more domestic supply is outweighing any concerns about river close. We expect domestic urea prices to run steady in the short term.

UAN

Buying interest has been slow throughout the Midwest as most dealers would rather wait in hopes the OCI plant in Wever, Iowa, and CF's Port Neal come on stream before having to cover spring needs. However, dealers were able to accomplish some light layering in, choosing to buy more volumes off rail rather than at river terminals. In the Wheat Belt, farmers and dealers showed less than usual levels of demand for the winter wheat run. The lack of buying interest from end users has been attributed to low wheat prices and poor weather conditions.

Interior prices were flat to slightly lower with tons in St. Louis priced $5 lower than August at $170 to $175. NOLA (New Orleans, Louisiana) UAN cash barge trading was thin at slightly lower prices in September, moving from $135 to $140 early to $134 to $138 late. A UAN cargo out of Donaldsonville was sold into the U.S. West Coast, but prices were not disclosed, with last business being reported at $170 to $175 cfr. A sale was also concluded on the U.S. East Coast at $145 cfr.

There has been much talk as to when Wever and Port Neal will begin production. Many expect the Port Neal expansion to be producing by Q1. Opinions are mixed on the Wever plant, with some believing the plant will not be ready to start ammonia production in Q4, as reported by OCI. With time on the buyers' side for now, many expect prices will have to come down in the near term. However, as we come closer to application season, any delays in bringing this extra capacity online could lead to a rally in early spring if a significant quantity still needs to be bought. With no significant business needing to be done anytime soon domestically, we see UAN prices holding steady until buyers step in or producers get aggressive with their pricing. However, it will be interesting to see whether CF lowers their prices, as the producer also has a responsibility to those buyers who did step in early to purchase fill tons, as otherwise this brings even more of an incentive for buyers to wait before stepping in next year.

DAP

Any stability in world DAP prices has been short-lived with the end of September seeing some renewed weakness creeping into most regions, and the Asian markets are continuing to fare less well than their western counterparts. Moroccan DAP prices were down $5 from last month to $340 to $350 mt. The latest sale into Pakistan saw the Chinese DAP price fall through the $320 fob threshold down to nearer $310 fob. Indian interest is falling away and competition for residual requirements in the region is increasing. In the Americas, Brazil has remained relatively stable with MAP prices softening slightly to $350 to $355 cfr, but here again demand is waning.

With significant oversupply available to major markets, a sharp increase in export capacity, oversupply of ammonia and sulphur, and crop market prices generally weak, the outlook for phosphate fertilizer prices in the short-to-medium term is definitely not one of price increase.

In the domestic market, NOLA barge prices are in decline, faced with excessive quantities of imported material coming in at the last minute. An estimated 121,000 mt DAP and 116,000 mt MAP were imported during September, all of that coming in the second half of September from Morocco. Last barge trades were done in the $315 to $317 st range, down from $325 to $328 at the end of August, and MAP at a $15 to $20 premium. Export tons have been traded in the upper $330s fob U.S. Gulf, but with the Brazilian price likely to come off during Q4, a corresponding knock-on effect could be felt in Tampa.

Across the Corn Belt, there has been some light buying and small amounts are being applied to fields as acres get harvested. More rain in parts of western Oklahoma and north-central Texas have paused DAP sales and application for wheat preplant. The latest USDA Crop Progress report has winter wheat planting at 30% complete, which suggests some buying and application could still be done.

Interior prices were flat to lower from August. Prices at St. Louis are still at $355 to $360 st while prices in Cincinnati and Tulsa are down $10 from last month both to $345 to $350 st. Fall application buying should limit downward domestic price developments through the short term. However, as buying interest slows toward the end of the year, we look for prices to weaken.

POTASH

Domestic potash prices moved higher in September, pressured by product tightness at the terminal/warehouse level. Producers posted price increases of $15 to $20 st at mid-month, putting prices at $240 to $250 st in the Midwest and $235 to $250 st in the Southern Plains. Very few spot deals have been transacted at these higher numbers for the reason that most wholesaler/dealer requirements were met from consigned tons accepted before the previous price increase.

Product supply is light on the river, and barge trading has been minimal. Last known NOLA barges traded were priced $205 to $215 st, up from $185 to $188 late August. With some fall buying still possible and no significant downward pressure, we look for potash prices to run steady to slightly higher in the short term.

COMPANY NEWS

This month Agrium and PotashCorp announced they are going ahead with a merger of equals. A new parent company will be formed to own both companies. The merger will create the largest crop nutrient company in the world and the third-largest natural resource company in Canada. The new company will combine nitrogen, phosphate and potash production assets, have close to 20,000 employees, operations and investments in 18 countries. Upon closing of the transaction, Jochen Tilk, CEO of PotashCorp, will serve as executive chairman, and Chuck Magro, CEO of Agrium, will serve as chief executive officer, both reporting to the new board of directors. The transaction is expected to close in mid-2017.

Karl Stenerson can be reached at talk@dtn.com

(CZ/AG)