Market participants across most of the world returned this week following the festive break and were greeted by a combination of inactivity, lower European gas prices and no Indian urea purchasing tender in sight.
Overall markets were largely inactive as is typically the case this time of year as some take an extended break following New Year. However, cracks began to show in producer resolve with sales taking place in Egypt below $500pt fob. Prices were last at this point in September 2021 when the first European production shutdowns (CF Industries in the UK) were announced due to high gas costs.
Egyptians were pressured into cutting prices as January shipments remain available in nearly every major region. Suppliers from the Arab Gulf, Nigeria and SE Asia restarted eyeing European premiums.
European gas prices ease
European gas prices have been one of the key defining features for nitrogen fertilizer sentiment as they establish a production cost floor below which European production is no longer feasible. Indeed, Achema Lithuania temporarily shuttered remaining production on 19 December.
Importantly though, recent declines in regional gas prices have reduced the production costs for producers substantially. February TTF contracts have been trading around €70MWh, equivalent to $21.5mmBtu. Gas prices were at €135-140MWh during FH December. However, mild winter weather in Europe has led to a sharp decline in values over the last few weeks.
The latest gas prices point to ammonia break even costs of under $800pt ex-works for an efficient plant before emissions costs, well below current imported ammonia values. The breakeven cost for urea is around $575pt ex-works before emissions costs. While this is above current import values, it does also provide an effective price ceiling for importers.
The lower gas prices primarily benefits nitrates producers with production costs expected to decrease by around €100pt for AN. While this is a positive, it does also add heavily to the existing downward pressures on nitrate prices.
Demand remains absent
Critically, demand remains largely absent and lukewarm in some places at best. The next anticipated Indian tender continues to be delayed. Of note, reports that a tender was due soon were first circulating in early December. Fundamentally, the only active market for the last 2-3 months has not re-entered the market as expected.
Brazilian, European and US demand also continues to remain on the side lines. Brazilian buyers have been purchasing speculatively while doing their best to drive the price lower. In Europe, the above mentioned gas prices and previous imports have stifled demand, at least for now.
Meanwhile, the US continues to be well behind on imports for the season but despite this demand remains weak with the application season still months away.
Total imports during July-November were at 1.29m. tonnes, down from 2.36m. tonnes over the same period. Of note, import demand was significantly higher last season owing to domestic production cutbacks and disruption caused by Hurricane Ida. However, this has in part been compensated for by higher exports.
Total urea exports this season from July-November stand at 698,000t, far higher than the 79,000t that was exported during the corresponding period of 2021. In addition, a major US producer committed a further three cargoes for export in January.
As a result, the US does require imports in the coming months. However, with supply ample, US buyers may not struggle to find supply unless a second major market (e.g. Europe) begins to compete for product.
By Michael Samueli, Nitrogen Daily Editor