Urea Market in Brief
Last year’s IFA conference coincided with a very bullish period in the urea market and this year looks set to be a repeat, with one main exception. Prices are USD25-30/t higher than 12 months ago so the potential upside is less. And the higher prices appear more firmly based.
Fob levels have edged up in most regions this week, reaching USD285/t fob in the Middle East for July and similar levels in Algeria. Limited new demand is mitigated by tight supply. Attention will focus on the timing of the next Indian tender, potential Chinese exports, Brazilian demand and the impact of reduced corn plantings in the US. Short-term forecasts show a short-to-balanced market in third quarter, suggesting firm prices for urea.
Market Forces
Market Outlook in Next Month
The global supply-demand balance suggests prices will firm in third quarter, led by purchasing East of Suez, supported eventually by Brazil and Europe.
The urea market has firmed, unusually, during the second quarter and will continue to do so into the second half of the year. Producers in most regions have begun June in a comfortable position, either fully committed or with only limited tonnages to sell for the second half of the month. There is little demand left to be covered in June but some spot requirements remain for Europe and Australia.
Prices for urea have moved up to USD285/t fob in the Middle East and Egypt, while Baltic prills have sold in the high- USD250s/t fob. This is approximately USD30/t higher than a year ago. Average prices for the year to date are running USD9/t higher in the Middle East, USD12/t higher in Egypt and USD19/t higher in the Baltic.
Traders are already positioning for July, booking cargoes in North Africa above USD280/t fob. We expect prices to remain strong through third quarter ahead of the peak demand period in October-November.
There is a risk of the market overheating in third quarter and seeing a consequent price correction if Chinese exports rise rapidly. Some Chinese urea has traded for July shipment at prices in the mid-USD270s/t fob, but prices do not need to fall further to be competitive. Chinese prilled urea has yet to feature for export and a two-week delay to the summer season is likely to mean that exports only start in significant volumes for August.
India is expected to tender again during the second half of June for July shipment. Under the pre-BT system of calculation, urea stocks fell to about 1.1mn t at the end of May, compared to 1.7mn t at the end of May 2018. Production of urea is also falling short of planned levels in India due to plant outages. Output in April-May was about 400,000t lower than in the same months of 2018. Sales have not fallen.
In fact, the sale of about 250,000t of urea to India and Pakistan for late-May and June shipment has put Egyptian producers in a very favorable position, compensating for the loss of the Turkish market to Iranian suppliers and enabling them to push fob levels up for the remaining quantities. This situation should persist into July, presenting European buyers with a dilemma.
Asia
Turkmenistan
The Garabogaz plant restarted late last week. Shipments from the plant have resumed, but loading rates do not exceed 1,500t/day as the conveyor belt is still not operating due to unresolved technical issues with shore scales.
Caran Holding’s vessel carrying 4,300t of granular urea has sailed along the Volga-Don river system for a Black Sea destination. State holding company Turkmenhimiya has shipped 2,500t to Turkmenbashi for the domestic market.
Traders might be faced with the lack of river-sea vessels in the Caspian Sea once the conveyor belt becomes operational at Garabogaz because Socar in Azerbaijan is shipping in river-sea vessels as well. Freight rates are currently at USD55- 65/t for shipments from Turkmenistan to Black Sea ports but are likely to move up on stronger demand.
China
Domestic prices are relatively unchanged, some suppliers raising prilled urea offers where there is more demand, others seeing slightly lower prices for granular urea. Prilled urea prices have eased to USD285-290/t fob for export, while granular urea indications are firmer.
Last week, China BlueChem sold 30,000t of Fudao granular urea to Ameropa in the low-mid USD280s/t fob to load midJune for Australia. It has a further cargo available for end June. China Coal is reported to have sold 30,000t to Gavilon at USD273/t fob for July shipment to Chile. But price indications are higher this week at close to USD280/t fob.
India
Provisional statistics for May suggest that India needs to buy more urea for July shipment to cover its needs for the kharif season. MMTC is expected to hold a tender in the second half of June. Based on the old, pre-DBT system of assessment, sales in May were about 2.1mn tonnes, about 350,000t higher than in May 2018.
Production at Indian factories is lagging behind target levels due to outages at some plants. MCFL is shut down due to a shortage of water. Nagarjuna is operating only one of its two lines and BVCL is down following an explosion.
Output in May is put at 1.94mn t compared to 2.06mn t in the same month of 2018. Stocks at the end of May were about 1.1mn t, down from 1.74mn t a year ago.
Middle East
With most of the region on holiday this week, there has been little activity. However, prices moved up in the one spot sale reported. Producers are in a strong position to maintain asking prices until fresh demand surfaces from India.
Oman
A trader has bought 50,000t of granular urea from SIUCI at USD285/t fob for second half July shipment. Midgulf will load 50,000t of urea in Sohar in the first half of June for India.
Africa
Egypt
Traders have paid USD280/t fob for granular urea for July shipment and are bidding in the low-USD280s/t fob for more tonnage. Producers are now asking above USD285/t fob. Availability for July appears limited due to plant turnarounds, peak domestic demand and 1-2 formula cargoes sold for Latin America. Mopco sold 10,000t of granular urea at USD280/t fob and has agreed formula cargoes for July. Its balance July tonnage will be offered in the coming week.
Abu Qir has sold 8,000t of prilled urea for June shipment at USD280/t fob. Koch is in the market for a vessel to load 40,000t of urea in Damietta 15-20 June for Santos and Paranagua, Brazil..
South Africa
Imports of urea shrank to just 96,000t in the first four months of 2019 from 132,000t in the same period of 2018, showing the impact of heavy carryover stocks following a drought-affected season in 2018. The main suppliers were Qatar with 53,000t (60,000t in 2018) and Abu Dhabi with 30,000t (47,000t in 2018).
Report By: Shahriar Yusefi
