Fertilizer Prices Moving from Floor Prices, But Upside LimitedTue, 16 Sep 2014 11:19:07 CDT
Fertilizer prices are slowly rising from the floor prices witnessed earlier this year, driven by both intentional and unintentional supply reductions across the board. Seasonal demand, mostly from China, India and the US, is unlikely to cause any prolonged rise in prices for the fertilizer complex, while bearish sentiment in global commodities is leading to reluctance towards stock accumulation across the fertilizer chains. Rabobank believes that bearish commodity prices will have limited impact on input use in the short term, while the medium-term picture could see farmers reducing fertilizer applications as margins come under more pressure.
Tight supply provides some positives in urea
Supply disruptions and supply chain management in local urea markets are providing upward pressure. These local drivers could prove insufficient, slowing the bull run, and thus stabilizing prices.
A tight supply in granular markets is more evident than for prills. Seasonal demand pull from India and the US is unlikely to be sufficient to initiate prolonged higher prices.
While there may be some scope for price increases, mostly driven by a few regional markets, the general tone in urea remains cautious given that already low commodity
prices and the lurking possibility of further price decreases are not exactly incentives to accumulate stocks.
China is steering the direction of urea prices, and it seems traders have overestimated this source of seemingly infinite cheap urea. Indeed, traders with short positions in Indian tenders are unable to deliver on earlier price commitments given the urea price increases in China. As a result of the momentum that has gathered pace in terms of supply chain management and prices, China will likely force India to prematurely retender to secure sufficient volumes, albeit at higher prices.
Seasonal demand pull and logistical bottlenecks are turning the US into a premium market for granular material, but timing will once again prove crucial. The fertilizer game in
the US depends on timely delivery of inputs and a potentially squeezed window of application, the latter being a matter of harvest timing and weather. Depleted stocks following substantial application in the spring will also provide demand support.
Slight price support for phosphates in Q3
The overall phosphate price trend is seasonal and fragile. India will provide some upside in the east, combined with tighter supply from China. In India, the situation depends mainly on how monsoon rains progress.
Rabobank sees some potential for phosphate prices to continue to trade at higher prices. Huge price hikes appear unlikely, but there is a slight price support from India, China and the US.
In India, Rabobank sees fragile price support. For phosphoric acid, elevated import prices and a price ceiling as a result of India’s subsidy system provide downside. However, upside comes from hopes of recovering monsoon rains and low DAP stocks throughout the chain.
The autumn application of phosphates in the US will provide additional demand pull. Combined with the logistical issues of congested barge and rail markets, this will
support prices in the Americas. Tighter DAP availability from China appears imminent as their domestic season is about to begin, and improved logistics will make a stronger focus on directing volumes to the domestic market more likely.
Both Brazil and Morocco could limit substantial price increases. To pre-empt any logistical bottlenecks ahead of planting, Brazil appears to have covered a substantial amount of its import needs in the first half of the year and, as a result, is in a relatively comfortable stock position. A new million tonne DAP/MAP facility in Morocco could also inhibit further price increases.
Potash prices stable this quarter
Rabobank forecasts relatively stable potash prices in the Southern Hemisphere, with some temporary price increases in North America, Europe and China.
Any temporary price increases for potash in North America (due to logistical bottlenecks) and Europe are not expected to drive potash prices up in the spot markets of Latin America and Southeast Asia.
As supply contracts with China will likely be extended until the end of this year and India's contracts run until March 2015, there is no expected impact from these traditional
benchmark prices and, as such, Rabobank expects stable prices in the Southern Hemisphere in the coming months. However, increased demand in China will support margins for domestic potash producers and importers/wholesalers.
Even the price momentum in Brazil—the most important bullish potash market this year—is fading to below average on the back of lower agricultural commodity prices and relatively high imports of stocks in 1H.
Click below to read the full report from Rabobank, including the region fertilizer outlook with how China, India, Brazil and Europe will impact the market supply and demand situation.
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