Urea prices face threat of 'temporary slump'

The outlook for the urea market looks weakest among that of the major fertilizers, with the potential for a "temporary price slump" under the weight of Chinese supplies, sufficient to cause some capacity shutdowns.

 

Rabobank said it was upbeat over prospects for urea demand in many markets, including the US, where it will be underpinned by farmers' plans to take sowings of corn, a nutrient-hungry crop, to the highest since the 1930s.

 

"Given the robust outlook for this year's planting season, US urea imports are expected to at least match last year's levels," Rabobank analyst Dirk Jan Kennes said.

 

In 2012, the US raised urea imports by 18% to 6.9m tonnes, with Rabobank foreseeing buy-ins in the current quarter at 1.6m tonnes, in line with those of the same period of last year.

 

Brazilian urea imports, having jumped 60% to more than 870,000 tonnes in the January-to-March period, "are expected to remain seasonally strong through the second quarter, as the supply chain continues preparations for the main planting season that starts in September," Mr Kennes said.

 

 

However, he said that he was "neutral to negative" on urea price prospects, thanks to the looseness of export supplies, notably from China, where a build-up of stocks in bonded warehouses was allowing merchants to avoid the strictures of the country's high tax window.

 

China operates a seasonal tariff regime on exports of a number of fertilizers - for urea, offering low taxes in the July-to-October period in an effort to preserve domestic supplies during higher-need periods at home.

 

In the first two months of the year, China's urea shipments more than quintupled to 615,000 tonnes, enabled by "slack supervision by Chinese customs that allows large volumes to be exported beyond the low export-tax window".

 

Even now, urea inventories left in bonded warehouses could be up to 570,000 tonnes.

 

"This underpins the possibility of Chinese competition, even in the second quarter, in the absence of government supervision," Mr Kennes said.

 

 

The extent of world supplies "points to a relatively oversupplied market in the second and third quarters of 2013", he said.

 

"The fundamentals also underpin the likelihood of a temporary price slump to a threshold under the $350 a tonne export for prilled urea.

 

"This would trigger plant shutdowns in high-cost regions."

 

However, capacity cuts would act to underpin prices, and push them back up to "around" $350 a tonne, he added.

 

 

Rabobank said that prospect of Chinese exports remained a pressure in the phosphate market too, adding that while the "market is anticipating an increase" in prices, it had a "neutral" stance.

 

US demand for now would be depressed by the extent of fieldwork achieved during the dry autumn last year, leaving less need for applications now.

 

In potash, the bank stated a "neutral" price forecast too, flagging the balance between healthy prospects for Asian and Latin American demand against large North American inventories.

 

Although discounted prices agreed with Chinese and Indian buyers, the top importers, "limit the downward trend, they also indicate the fact that high stocks are still adding some pressure to potash prices", Mr Kennes said.