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The global urea market remains in limbo in the aftermath of the latest Indian tender.
Despite India buying a total of 1.8m. tonnes in its most recent purchasing inquiry, the largest volumes secured since November 2019, the market has not firmed and urea prices are stable to soft across most regions.
A major factor has been the withdrawal of western buyers over the last 1-2 weeks from the market. This is particularly the case in Brazil where high levels of demand in August led to a significant increase in the shipping line up and projected imports year on year. This in large part satisfied prompt requirements and allowed buyers breathing room before needing to buy further volume.
Indeed, over the period that Brazilian buyers were actively competing with India for north African and Arab Gulf product, cfr Brazil prices rallied by around $40pt (since early July). Good farm economics have resulted in a surge in demand from Brazil during July and August this year, this has been further boosted by a favourable forex position.
However, given the speed of the price increases and the plentiful volumes earmarked for September shipment to Brazil, buyers have felt confident in disengaging from the market. With the bulk of requirements for the Brazilian Safrinha season generally booked in October-December, buyers can afford to take a step back from purchasing for the time being.
In August, the country imported 590,000t, up 66% from 356,000t in August 2019. While, 581,000t arrived in July, compared with 369,000t in July last year. A similar volume is expected in September despite the large volumes booked by India. This is due to the active Chinese participation in India. Over the last four Indian tenders a combined 1.80m. tonnes were secured from China out of a total 3.57m. tonnes booked. This left sufficient volumes of granular urea in north Africa, the Arab Gulf and the FSU for Brazil.
Producers, however, are strongly resisting the lower price ideas from buyers amid expectations that India would likely be back in the market again shortly with a fresh purchasing inquiry. In addition, around 1m. tonnes of Chinese urea were committed to India in the most recent MMTC tender (26 August for 1.8m. tonnes total). Shipment in the tender is required by 5 October, and this has led to some doubts around whether up to 20 vessels can sail out of China in time. If not, those caught short would have to actively seek alternative supply sources from western producers which would likely support western fob prices.
The above factors have led to uncertainty around the short term market direction of urea, which has primarily translated to inactivity as both buyers and producers have some time before having to change their stance.
By Neha Popat and Michael Samueli, Profercy Nitrogen
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