MMTC announced the second Indian urea purchasing tender of the current campaign this week. The tender will close on 4 May and the shipment window will be almost seven weeks long, a comparatively lengthy amount of time. The previous RCF tender shipment window was only around five weeks.
The long shipment window has been widely interpreted as an indication that MMTC is targeting a sizeable purchase. Indeed, several reports suggest that the state purchasing agency has authority for a purchase of over 1.5m. tonnes, or up to 1.8m. tonnes. Typically though, these figures are not fixed with volumes procured naturally influenced by offer levels and timing.
A purchase of this size would contrast the earlier RCF tender which took place end-March for shipments to 28 April. RCF booked just over 800,000t for April shipment at $379.87- 380.18pt cfr east coast/west coast and declined the other 530,000t offered firm by suppliers. The knock on impact this has had on supply availability just as peak spring season import demand in Europe and the USA draws to a close continues to be felt in the market today.
Unlike RCF, which tendered during a seemingly tight market, MMTC is tendering during a time of greater availability and a bearish overtone. Indeed, fob values for Middle East granular and Chinese prills are presently more than $15pt below netback levels in the previous RCF tender.
For RCF, around 900,000t of urea was offered firm from China for the five-week shipment window. Indications are that China will once again be a major supplier for MMTC, and basis availability during the previous tender, over 1.2m. tonnes could be offered this time around. That would be over 65% of the purchase volume assuming 1.8m. tonnes are booked, and 80% if 1.5m. tonnes are booked. This would leave around 600,000t for other regions.
Sluggish demand in the western hemisphere has built up supply pressure on producers in nearly every other exporting region including the Arab Gulf, Algeria and the Black Sea (Ukraine). Supply is also feasible from Egypt and the Baltic, especially for first half June shipment.
Therefore, serious competition for the upcoming India tender business is likely with the Arab Gulf, Egypt, Black Sea/Ukraine and Indonesia all expected to try to secure a share of the awards not taken by China. To varying degrees these supply areas have few other large outlets for product for May and June shipment. Certainly, the Arab Gulf suppliers would probably achieve their best returns in selling to India given the high freights faced moving cargoes to Latin America and Australia.
Despite the recent bearish tone in the urea market, high freight rates alone dictate that award prices will not be extremely low. Further, robust macroeconomic factors such as high corn prices could see some traders cautious in their approach even though the corn price boom is more likely to impact refill prices for urea in the west. Caution could also be seen if Chinese suppliers shows signs of both limiting export availability and resisting buyers’ efforts to press fob prices down to viable levels for India. However, in some respects it would be odd for China to hold back given, firstly, the expected slow down in domestic use in June/July and second, the still high returns that will be possible in India.
By Michael Samueli, Daily Nitrogen Market Editor