Ammonia market turbulence shows no sign of easing as supply/demand headwinds trigger fresh price falls
One year on from new US sanctions on Iran, the impact on prices is much reduced with Western markets open to increasing volumes. For example, the latest import data from Turkey has again highlighted the increased presence of Iranian granular urea in the Turkish market at the expense of Egyptian and Russian suppliers.
Turkish imports for the first nine months of the year were 1.93m. tonnes, just below the 1.98m. tonnes imported in the same period in 2018. Shipments from Iran have totaled 598,000t, up 76% or 258,000t year-on-year. However, the latest data lists an additional 217,000t from Oman, widely understood to be product of Iranian origin, bringing the implied total supplied from Iran to a significant 815,000t since January. Indeed, Profercy has identified no shipments of Omani granular urea to Turkey this year.
The increased flow of urea from Iran has come in the wake of US-led sanctions that came into force in Q4 2018. With easy access to many major markets blocked, Iranian producers have moved quickly to take market share in Turkey, largely selling out of warehouses via a distribution company set up for the purpose. This form of accessing a major market has been duplicated in Brazil this year and, latterly, NW Europe. Shipments to China for re-export to India/Asia rather than distribution have also continued.
The arrangements for Turkey, Brazil and NW Europe are still costly for Iran but appear less than the China re-export option as double seafreight is avoided. Shipping via China to India can result in a discount of well over $50pt being forced on Iranian product whereas, in Brazil, openly the discount with other origins basis cfr values has been $20-30pt. However, there have been additional costs hitting Iranian netbacks. Costly vessel waiting and discharging delays have hit Iranian flag vessels plying the trade with the main discharge port of Imbituba not suitable for 75,000t urea cargoes.
Returning to Turkey, exacerbating the issue for Egyptian and the FSU suppliers this year has been the start-up of new granular urea capacity in Turkmenistan, which has supplied 155,000t of urea in the past year. SOCAR’s facility in Azerbaijan is yet to have a significant impact on the Turkish market following start-up earlier this year, but is expected to do so in the coming months.
The loss of a large tranche of the Turkish market has increased Egyptian and, to a lesser degree, Russian prilled urea producers reliance on other European and long-haul markets. Indeed, Brazilian granular urea imports from Egypt during January to September this year were double those of Q1-Q3 2018 at 342,000t. For Egypt’s producers, Brazil is not an ideal choice as the product has no duty advantage (as in Europe/Turkey) while there has been a second issue in that Iranian urea shipped to Brazil has held Brazilian prices back since May.
While the situation was not particularly challenging for Egypt in the first half of the year when demand was strong in Europe as well as in North America, Q3 onwards has been a different story. Average prices in Q3 this year were just below $270pt fob Egypt compared to $293pt fob in Q3 2019. Presently, Egyptian granular urea is valued below $245pt fob, more than $85pt down year-on-year.
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