DTN Fertilizer Outlook

Wholesale Fertilizer Prices Expected to Weaken on Slowing Demand

(Chart courtesy of Karl Stenerson)

Wholesale prices for most fertilizers are expected to run steady to slightly lower in the near term on slowing seasonal demand and ample supplies.

Here is a breakdown of prices and trends by the various fertilizers:

AMMONIA

World ammonia prices increased over the month owing to multiple supply restrictions and stable demand. Very few spot deals were concluded out of Yuzhnyy, former Soviet Union (FSU), due to restricted supply from TogliattiAzot, and export tons are priced higher at $180 to $190 per metric ton (mt) fob (free on board -- the buyer pays for transportation of the goods), up from $170 to $175/mt at the end of October.

In Algeria, Sorfert declared force majeure due to an unexpected outage at its merchant ammonia line. Any further cargoes are cancelled until further notice, adding to already significant tightness in the market.

The most notable price increases took place in the Middle East. A sale of a 23,000-to-40,000 mt cargo by Sabic was reportedly priced at $173/mt fob Middle East, $11 above the last known deal. In Egypt, Abu Qir closed an export tender for 11,000 mt with the award going to Trammo at $173/mt fob. This was an increase of $6 from the previous tender award in early October.

Middle East spot values ended the month at $173 to $185/mt, up from $155 to $166/mt at the end of October. Confirming that prices are picking up was an announcement of the settlement between Yara and Mosaic of the contract price for December ammonia deliveries into Tampa at $225/mt cfr (cost and freight), $15 above the November level of $210/mt cfr. This was the first increase in the settlement since May. The short-term outlook for world ammonia prices is firmer as spot availability is really now becoming a wide issue for near-term loading.

Much of the domestic fertilizer market's focus over the last month was on anhydrous ammonia sales and logistics for the fall direct application season. Warm weather made for a later-than-usual fall season, but farmers were able to have a solid application run in key areas of Illinois and Iowa during the two weeks leading up to Thanksgiving.

Sales were not as strong, however, in the Northern Plains where demand has been weaker due to unfavorable application conditions.

Minneapolis prices dropped $5 over the month to $345 per short ton (t) due to weak demand and producers in North Dakota and Canada being long supplies. But prices elsewhere in the Corn Belt held flat. Other Midwest prices saw little to no movement over the month as, for the most part, sellers were content with getting some tons moving and buyers were well attracted to the per-unit N value.

It was seasonally quiet in the Southern Plains, and prices excluding Oklahoma plants held steady at $280 to $300/t, but Houston truckloads were off $10 from end of October to $235/t. CF's Port Neal, Iowa, plant has introduced gas into the ammonia plant, and production is expected soon with the urea plant to be commissioned concurrently.

Ammonia production at OCI's Iowa Fertilizer Company facility is expected to begin December 2016 with the downstream products expected to follow shortly after. It is possible short-term domestic prices may be influenced by the recent strengthening in world prices, but assuming new production commences as expected, we look for domestic prices to run flat to weaker.

UREA

World urea market prices rose significantly over the month, mostly on the back of higher sales prices in Brazil and continued low production rates in China, but also on the expectation of an Indian tender. Yuzhnyy fob prices were at $215 to $220/mt as of late, up from $190 to $195/mt seen late October.

In China, continued firmness in coal prices pushed offers for export tons up $35 from last month, now at $240 to $255/mt fob. Domestic Chinese prices have also firmed on the back of local tightness. Firmness stateside drove up price levels in North Africa, with Egyptian product being sold as high as $265 to $270/mt fob as of late, up from the $204 to $215/mt range seen end of October.

Toward the end of the month, all eyes were on India to provide price direction with the results of STC's tender. Offers for the tender came in around $40to $42/mt higher than the MMTC tender in September, which quickly lent support to other market prices. Initially, STC verbally awarded 830,000 mt at these prices, which were to be sourced mostly from Iran.

However, the Indian Department of Fertilizers made a surprise move and decided to scrap the tender. October India figures for stock levels showed that sales were significantly down, with inland stocks ending the month at 2.1 million metric tons, compared with 700,000 mmt in the same month a year earlier. Considering these high stock levels, as well as the expectation that farmers will continue to face cash-flow issues in November and December, the question is now whether India will return to tender at all before the new year.

The news of the scrapped tender sent a ripple through the rest of the urea market. However, markets with limited availability through the end of the year, such as Egypt and China, are not expected to be greatly affected by it. On the other hand, the Iranians will now need to find buyers for a significant volume in December, which could put significant downward pressure on certain market prices, for instance Europe and Turkey.

New Orleans, Louisiana, (NOLA) barge prices rallied from $198 to $202/t late last month to $227 to $240/t by the end of November. This was mostly on traders taking positions on an estimated year-to-date supply shortage near 1 mmt.

Interior prices have been adjusted upward to reflect replacement costs out of NOLA, with Mississippi warehouse values at $250 to $270/t and Catoosa, Oklahoma, at $270/t. However, there has been very little liquidity at the farmer/dealer level. Many buyers are waiting in expectations the Port Neal and Wever, Iowa, plants will start producing, and they will see lower prices before having to refill inventories ahead of the spring season.

Following news of India's scrapped tender, NOLA barge trading slowed down heading into the holiday weekend. Prices for prompt barges were off $10 from the recent high, down to $227 to $232/t, while full December barges were concluded at $234 to $240/t. For January, sales were agreed at a reported $239 to $250/t, while February sales were at $252/t.

The U.S. is a viable target for some of the Indian tender tons, which could lead to an influx in imports if India decides not to retender. That, coupled with new production possible by the end of the year, should start to cover the reduction in import tons seen through most of this year and start to put downward pressure on prices. We feel urea prices have hit a high, or are at least nearing a high, and should run steady to slightly weaker in the short-to-medium term.

UAN

Domestic prices firmed in the course of the month on the back of higher urea prices and limited nearby availability. Producers have been comfortable enough with their forward sales to bring their prices up following the rally in urea prices.

Demand has also improved mildly as buyers have been attracted to the per-unit N value relative to urea. Midwest spot prices were up $15 to $20 with Cincinnati now at $185 to $190/t for 32%. NOLA barge trading was thin throughout the month. Buyers are looking at $150 to $155/t to place any tons, up from $130 to $135/t at the end October. On the U.S. East Coast, price indications rose from $145 to $148/mt cfr in early November to $155 to $160/mt cfr by mid-month and $160 to $170/mt cfr at the end of November, with EuroChem selling Black Sea product at that level. Domestic prices steadied heading into the holiday weekend as news of the scrapped India urea tender broke. We expect domestic UAN prices to run steady in the short-term as urea prices seem to have plateaued for the time being.

DAP

World DAP prices slid lower for most of the month but were able to end on a somewhat higher note. Sales to Southeast Asia permitted an increase of China fob prices to $310 to $315/mt as of late, up from the end October level of $295 to $311/mt.

China is tight on DAP for the remainder of the year due to production curtailments and some producers holding back from the market in the hope that the Chinese government will effectively remove the export tax Jan. 1.

Saudi Arabian and Moroccan producers are fully committed for December and beyond, which has supported DAP prices as of recent with the latter now priced at $332 to $341/mt fob, up slightly from $325 to $345/mt at end of October.

However, a considerable amount of Lithuanian, Russian, U.S. and Mexican material appears to be hanging over the market for December onward, and Western prices still remain weak.

Mexican MAP has been sold in Brazil at a lower $325 to $335/mt cfr compared to $340 to $348/mt cfr one month ago.

U.S. export tons are also priced lower at $320 to $322/mt fob Gulf from $330/mt at the end of October. There is demand for DAP and MAP on the horizon in Europe and the U.S., but it may not be sufficient to absorb global supply when the key import markets in Asia and South America are between seasons. It seems, therefore, that the direction of world phosphate prices will largely depend on whether unhurried buyers can be convinced that prices have reached a floor and persuaded to step in to the market. We see world phosphate prices moving slightly lower in the short-term and flattening out in the medium-term.

U.S. DAP prices were flat to slight lower as fall demand slowed. Most buying was seen in the Midwest where farmers/dealers steadily bought small quantities to finish up fall application. Toward the end of the month, spot supply diminished at warehouses on the Ohio and Illinois Rivers, which helped control the downward price slide.

River terminal prices were generally off $5 from last month, now around $335 to $345/t. Central Florida truck prices were off $15 to $315/t. NOLA cash DAP barges traded at $288 to $296/t as of late, down from $304 to $305/t at the end of October.

Barges positioned upriver commanded about a $10 premium on the NOLA price as wholesalers looked to refill tons and secure some spot sales before the weather turns and seasonal application demand dries up. Prompt NOLA MAP barges last traded at $305 to $306/t fob. We look for domestic DAP prices to run flat to slightly softer as imports continue to weigh on NOLA barge values through the short-term.

POTASH

Interior potash prices were flat to firmer with most Corn Belt warehouses at a firm $250/t. Many farmers/dealers in the Midwest have been placing a few orders to wrap up the fall application season. Wholesalers report stronger-than-expected sales for the fall, and the lengthy season has seen spot supplies tighten in many markets.

Supplies have been especially tight on the Ohio and Illinois Rivers, and sellers here were able to achieve numerous sales at $250/t. In Southern markets, prices have firmed as well with Carlsbad fob values assessed at $225/t, up from $215 at the end October. NOLA prompt barges are off $5 from last month to $205/t.

Interior prices look to run flat to slightly higher for as long as the weather permits application to continue. Conversely, barge prices at NOLA should run steady to slightly softer as imports weigh on the market and the domestic spot market as a whole seasonally slows.

Questions for Karl Stenerson may be sent to Talk@dtn.com

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