DTN Fertilizer Outlook

3 Feb 2017

By Karl Stenerson
DTN Fertilizer Columnist

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

AMMONIA

International:

International ammonia prices continued to be pushed up by tight nearby availability with no spot metric tons available in either the Baltic or Black Sea until the end of February. Producers are reporting increased interest from the buyers on top of contract commitments with demand generally assessed as stable to good. Ongoing firmness of prices for downstream products, including urea, nitrates and caprolactam, is also rendering support to the buoyancy of ammonia prices worldwide.

The Black Sea market is dry due to the ongoing closure at the OPZ plant in Odessa and the pipeline dispute between TogliattiAzot and UKHTA, a company that controls the Ukrainian part of the Togliatti-Odessa pipeline. Export tons fob (free on board -- the buyer pays for transportation of the goods) Yuzhnny are assessed at $280 to $300 per metric ton (mton), up from $220 to $260 mton at the end of December. The inability of Ameropa to use the pipeline for exports of ammonia ex-TOAZ via Yuzhnyy has tightened the European/North African/Mediterranean regional market.

In the Baltic, no spot availability is expected until at least the end of February. Forward price ideas for the very little spot that may become available is quoted above $300 mton fob with reports of some ideas as high as $320 mton fob. Current prices are assessed in the $280 to $300 mton range, up from $240 to $270 mton at the end of December.

In the Middle East, Sabic reported a conclusion of a new spot sale of 25,000 mtons to 40,000 mtons to Koch for loading at the end of February priced at $302.50 mton fob. Spot and contract mtons fob Middle East are assessed at $220 to $305 mton, up from $190 to $210 mton at end of December.

Another major development took place in Turkey, where the ban on the domestic sale of CAN, which was introduced in June 2016, has been lifted. Price indications of upcoming deliveries already agreed with multiple buyers in Turkey are now reported to be at around $340 to $350 mton cfr (cost and freight) level with forward business heard to be discussed at even higher levels with $370 mton cfr prices mentioned.

In the United States, the Yara and Mosaic contract was settled at $320 mton cfr Tampa, a $70 increase from the January settlement of $250 mton and the highest contract price since January 2016. Also, Agrium announced the completion of its new 610,000-ton-per-year urea project at Borger in Texas, which will reduce merchant ammonia from the site by around 350,000 t/y (equivalent to about 29,000 tons per month).

The short-term outlook for international ammonia prices is firm until supply reductions are resolved, particularly in the Black Sea.

Domestic:

Higher international prices and strong forward sales put on by producers saw domestic ammonia prices strengthen through January.

Prompt tons in the Corn Belt are priced in the $340 to $405 per short ton (ston) fob range, generally up about $35 from the lows seen at the end of the fall application season. Spring prepay is running at a premium to prompt tons, priced $400 to $440/ston fob in the Corn Belt. The lower ends of the ranges reflect prices in the far Western Corn Belt and Northern Plains where markets look to remain relatively oversupplied going into spring owing to a disappointing fall application run. Cash sales out of Oklahoma plants were done around $310/ston early in the month, but prices moved up to $325 to $330/ston late, with prepay about $20 higher at $345 to $350/ston.

Winter fill business is for the most part completed. Dealers chose to store as many tons as possible due to the aggressive discount of prompt prices compared to prepay. There was also solid demand for spring prepay tons as climbing international prices continued to suggest current producer offers would not be available for long.

Rains delayed any plans of application in Oklahoma and Kansas. However, the first few weeks of the year saw a good initial application run across central Texas, stretching from the coastline up to the panhandle. Farmers are now waiting for fields to dry, but they expect to be back out in the fields soon. Application of nitrogens will be going ahead of corn planting as well as other row crops. However, some farmers are indicating they will be planting more acres of cotton as opposed to corn due to poor corn economics. Truckloads fob Beaumont are up $40 from the end of December to $290/ston on solid seasonal demand and increased replacement costs.

CF Industries Holdings announced on Dec. 28 that the new ammonia and urea plants at the company's Port Neal, Iowa, Nitrogen Complex have been successfully commissioned and started up. They confirmed that the ammonia plant began production in late November and has operated at approximately its nameplate capacity of 2,400 tons per day. The status of OCI's Wever, Iowa, plant is less clear, but rumor is that OCI is now targeting the first half of February for the start-up of their ammonia production.

Firmer international prices and moderate-to-strong spring prepay demand have helped support and firm domestic ammonia prices. We see further upside potential in the short- and medium-term as replacement costs have now increased and stronger demand will surface nearer spring. After the spring season, we expect prices to soften as the short-term international tightness abates and new domestic production starts to affect the market.

UREA

International:

The new year continued in strong form with international urea benchmarks showing upward momentum for most of January. Firmness continues to be driven by limited availability and traders taking positions. Buyers, however, are lagging behind in accepting higher prices in some parts.

Granular urea sales in Egypt were made as high as $285 mton fob at the end of January, up $25 to $30 from December. Middle East fob also traded higher at $265 to $280 mton, up from $255 to $260 mton.

On the prilled side, limited availability continues as OPP in Russia is now not expected to restart until March. Yuzhnyy prices are at a firm $245 to $250 mton, up $30 from December.

In China, continued low production means there is tightness there as well. Fob prices have increased $20 since the end of December, now trading at $256 to $270 mton.

European granular urea markets remained broadly slow, with snow and icy weather in many countries leaving buyers with little appetite for new metric tons. Northern European markets are still thought to have plenty of metric tons for the start of application, while delays in application in Spain mean there is also little urgency to buy.

With application seasons coming up in Europe and the U.S., there is, of course, still a need for a significant amount of product over the coming weeks, but these trends on the demand side could signal the start of a possible plateau. We look for international urea prices to run mostly flat in the short-term.

Domestic:

NOLA (New Orleans, Louisiana) barges ended the month trading around $240 to $250/ston but traded as high $259/ston midmonth. At the end of December, barge prices were in the $234 to $242/ston range. Many feel the recent softening in the market is only a short-term effect of sellers becoming aggressive in an effort to avoid demurrage costs. There are also numerous barges floating unsold, of which buyers are aware and taking advantage of.

Relative to action at the NOLA market, urea terminals were slow. Dealers are expecting less planted acres of corn this spring and have been very hesitant to take in many tons because prices are expected to soften at the end of the season.

Midwest values are mostly in the $280 to $290/ston range, up from $265 to $275/ston at the end of December. Increases were reflective of higher replacement costs due to NOLA barges trading higher over the past six weeks. Prompt tons out of the Twin Cities are hard to find and are priced at $300/ston. River open prices are $10 less at $290/ston. Midwest prepay prices are being supported by a $5/month carry being seen in the NOLA barge market and are running at about a $5 to $10 premium at most Midwest locations.

Warehouses on the Texas Gulf Coast ran clear through inventories early in the month. A flurry of buyers emerged after the holidays and cleaned out stocks. Suppliers are looking to reload as growers prepare to run some fertilizers on corn acres throughout Texas. Prices on reloaded tons to these markets have been quoted as high as $295 to $305/ston, up $40 from the end of December.

Agrium announced on Jan. 10 that construction of the urea plant in Borger, Texas, had been completed successfully. Commissioning of the plant is underway, with capacity reportedly at 610,000 tons per year, of which 100,000 tons per year will be diesel exhaust fluid (DEF). Production is expected to start within the first quarter of 2017.

The short-term outlook for domestic urea prices is steady. NOLA barge prices have been range bound in the $240 to $260 range and should continue to hover in the mid to higher end of that range in the next few weeks.

UAN

Domestic prices strengthened on limited availability and decent demand for winter fill and spring prepay. Reseller availability is limited, especially in the Eastern Corn Belt where, for the most part, plenty of buying still needs to be done ahead of spring. Wholesalers in central Ohio and central Indiana report good buying interest, but have little or no availability to provide rail buyers.

Domestic spot and prepay posted prices firmed up by $10 to $20 through January. Midwest prompt tons, where available, are priced at $205 to $215/ston. Second-quarter tons are priced at a $15 premium around $230/ston, inviting dealers to take in and store as many tons as possible before spring. Central Corn Belt resellers are generally quoting spring prepay at $230/ston for 32% but haven't seen much interest yet for these levels.

NOLA barge prices jumped up to the $185-$195/ston range by the end of January, and offers now stand at a range of $190 to $200 ston. Barges traded only as high as $160 in December. On the East Coast, sales were completed by EuroChem at $188 to $192 mton cfr, up about $15 from the last sale in December at $175 mton cfr. Current offers are in excess of $190 cfr on the East Coast.

Significant rains pushed back application work across central Texas. Farmers are now waiting for fields to dry but could be back out in about a week. Wholesalers reported that the start of the new year saw a good initial application run in central Texas, stretching from the coastline up to the panhandle. UAN has seen good demand as retail prices in the state have been cheap relative to wholesale prices and urea retail prices. Supplies were starting to get tight, but the rain should allow time for suppliers to get tons in place before the next run. Fertilizer is going on row crops, the most of which being for corn. Gulf Coast fob truckloads are being quoted in the $190 to $195/ston range but have potential to move up following recent barge sales in the NOLA market.

Rumor is now that OCI is targeting the first half of February for the start-up of their ammonia production at their Wever, Iowa, plant. It is generally expected that ensuing UAN production will not make any impact on the market this spring season.

The short-term outlook for domestic UAN prices is firmer. Limited availability from domestic producers and higher replacement costs from both NOLA and the East Coast should continue to support higher UAN prices over the next month.

PHOSPHATES

International:

World DAP and MAP prices continue to firm against a platform of comfortable global supply, albeit somewhat artificial basis deliberate cutbacks, annual turnarounds and production and logistical problems. Most producers are comfortable for February and beyond in some cases.

Mosaic has sold 14,000 tons U.S. DAP at a higher $335 mton fob for export in February/March, and activity in the U.S. domestic barge market has permitted suppliers to achieve higher prices in the range of $312 to $315/ston fob NOLA. The highest price Mosaic achieved in December was $325 mton. The producer is now quoting $345 fob for export, showing further strength in the market.

In Europe, traders have accepted higher prices of $345 to $350 fob for North African DAP, up $10 to $15 from prices achieved in December. Producers are confident there is still significant buying to be done. With supply looking like it will continue to be squeezed in Morocco in the coming weeks due to bad weather and the time required by OCP to catch up on its backlog of shipments, GCT is currently limiting the quantities it is making available for February loading.

Chinese prices for DAP continue to escalate. At the end of the month, buyers in Vietnam accepted the mid- to high-$370s cfr as the market moves closer to winter-spring application, netting about $350 to $360 mton fob China, up from $305 to $310 at end of December. Producers continue to limit availability for offshore markets, supported by reduced output, as the domestic market has more appeal with prices there moving up further.

In South America, meanwhile, Brazil has paid $350 mton cfr for MAP, priced $15 higher than metric tons in December.

It appears that the scene is set for DAP and MAP prices from all load origins to move up over the coming weeks due to healthy producer order books that should permit producers to cherry pick the fresh demand that emerges.

Domestic:

Barge prices fob NOLA traded at $312 to $315/ston at the end of December. The market has seen increases of $2 to $3 each week since mid-December when they were trading at $290 to $295/ston. Mosaic has a good export book going so far for the first quarter, and that has helped keep supplies in check domestically. The producer has now raised its asking price for barges fob NOLA to $320/ston for February shipment and $325/ston for March. MAP is commanding a $15 premium to DAP with barges at $335/ston fob NOLA for February loading and $340 for March.

Interior warehouse prices have yet to reflect the extent of recent gains in the barge market. Midwest warehouses were up only up $5 from last month compared to the barge market, which gained $15. Most are still posted in the $340 to $355/ston range.

Winter storms during the month put off any ideas of application work in the Midwest. Without any demand, wholesalers have been unable to increase prices to levels reflective of replacement costs out of the strengthening NOLA barge market. Many expect interior prices to run steady until some real buying activity emerges, and then market prices seem fit for slight increases.

We expect domestic prices to firm in the short-run on relatively tight supply and strengthening demand heading into the spring season.

POTASH

Interior potash prices are flat to higher from last month with a few markets now reporting prices at a firm $255 to $260/ston. However, while some markets are beginning to edge toward producers' targeted value of $265/ston fob Midwest warehouse, most are still quoting prices in the $235 to $245/ston range. Price increases are gaining the most traction at inland warehouses while prices fob river terminals remain steady. It seems the large producers are going to wait it out and capture sales at higher prices once importers sell off their length at current prices.

The NOLA market firmed slightly through the month with barges trading at $210 to $215/ston fob at the end of January, up from $205 to $208/ston at end of December.

With production still relatively low, we expect domestic potash prices to run steady to firmer in the short-term.

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

(AG/BAS)