FERTILIZER MARKET REPORT October 7, 2022

Impact from Hurricane Ian – Don’t Expect a Significant Drop in Near-Term Phosphate Prices

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Late last week: Major Florida phosphate facilities were spared a direct hit from Hurricane Ian, which plowed into the state further south than initially expected, devastating the Fort Myers area and moving through major orange groves as it made its way across the state. Prior to Ian hitting land, The Mosaic Co. had readied its phosphate facilities for the storm, saying all of its Florida locations were secured with some fully evacuated while minimal staff remained at other sites. “As we move into recovery mode from Hurricane Ian, our early assessments indicate that there were no environmental releases at our operations,” said a Mosaic spokesman late day Thursday. “We will continue inspections over the coming days to confirm our initial understanding. Our top priority remains the safety of our employees and communities.” “Our White Springs, Fla. facility was not damaged in the hurricane and remains operational,” said a Nutrien Ltd. spokesperson late Thursday. “Our Aurora, N.C., and Augusta, Ga., facilities continue to operate at this time. We have storm preparedness plans in place and we will continue to monitor conditions while taking all actions necessary to maintain the safety of our people and integrity of operations.” There was fear that the storm would cause phosphogypsum stacks to leak. As noted above, Mosaic saw no environmental releases, and said before the storm hit that it had made many improvements throughout years of Florida storms to help prevent any potential problems. While Ian produced over 6 inches of rain and strong winds at the leak-prone Piney Point phosphogypsum site in Tampa, the Florida Department of Environmental Protection said there was no identified damage to the compartment systems or any other water management concerns. Industry players were closely watching Ian for any impact on the phosphate market. If the Mosaic facilities are offline for 1-2 weeks, that could mean a loss of 250,000-350,000 mt of finished phosphates, or a $240-$330 million drop in revenue, according to Green Markets Director of Research Alexis Maxwell.

Monday of this week: The Mosaic Co. announced on Oct. 3 that early assessments indicate phosphate production could be down by approximately 200,000-250,000 mt due to Hurricane Ian, split roughly evenly between the third and fourth quarters of 2022. Repairs are expected to be completed over the next 1-2 weeks. Phosphate sales volumes in the third quarter are now expected to total 1.60-1.65 million mt, as port and rail closures delayed late third quarter shipments to October.

In our view, this will impact East Coast Canada supply which will likely feed into Western Canada prices.

Commentary from Green Markets

India

Sources still expect the next urea tender to be called by mid-October. This timing would allow for all the tonnage awarded in the last tender to be assigned vessels, removing the possibility of a producer backing off from the deal in favor of the expected higher price in the next tender. RCF is running a small tender for KSCL in Nepal. The tender for 30,000 mt of granular urea closes on Oct. 7, with shipping to take place within 30 days of the issuance of the purchase order. The urea is to be shipped in 50 kg bags for delivery to KSCL warehouses in Nepal.

China

There was a reported sale of up to 30,000 mt of granular urea to two Mexican buyers in the mid-USD$690s/mt CFR. With freight costs pegged at USD$70/mt, sources said the netback to China would be in the USD mid-$620s/mt FOB. The deal was reportedly brokered by a Chinese trader. This amount bumps up against other reports that Fudao closed a deal for granular at USD$645-$650/mt FOB. The Fudao price represents a slight drop in the price estimated from the latest Indian urea tender. The Mexican deal is set for shipment in October or early November, while the Indian-related business needs to ship by Oct. 21. Sources had been talking about softer prices going into the next quarter, despite expectations that India still needs to buy 3 million mt for this application season and Ethiopia appears to be gearing up for a 1 million mt tender. Prills from China are showing a marked bearish view, with sources pegging the price at USD$620/mt FOB with further drops to come. The export price offers Chinese traders potentially excellent margins. Reportedly, granular product is being offered atUSD $349-$350/mt FOB ex-factory, with bids at USD$339-$341/mt FOB ex-factory. The wide margin makes some international traders nervous. If a Chinese trader offers tons for export substantially below the existing market levels in an Indian tender, no other firm will be able to match the low price, leaving India with only the few tons offered at the low price. At the same time, the rest of the market will face growing reserves from other producers that could lead to a price collapse. Reports of port warehouse inventories showed 185,000 mt for September, down 33% from the average. Sources said the current supplies appear to be tonnage arriving to cover sales into the previous Indian tenders. Some of the tonnage may also be export-approved tons for the next tender. Sources said they expect to see an increase in export permit requests as the date of the next Indian tender approaches.

Commentary from Argus

In ammonia, the market continues to face disruption. Spot prices are still firm with the October Tampa contract up USD$25/mt over September. European production costs continue to remain well above import costs therefore European producers are likely to replace domestic output with imports. European gas prices are up again over Nordstream pipeline uncertainty. Mosaic was forced to shut down some production in the US. The outlook is still firm.

In nitrogen we saw a continuation of price softening due to a lack of demand in the global urea markets with buyers remaining on the sidelines anticipating further price erosion. Brazil prices slipped again and NOLA prices hit new lows. India is expected to tender again in the second half of October. The outlook is soft then firming in the second half of October and into November.

In phosphate the sentiment is bearish with Indian demand muted. MAP prices in Brazil softened again. DAP barges in the US are stable due to the hurricane impact.

North America Urea Last Two Weeks

According to Green Markets, last week, new NOLA urea barges were quoted in the USD$600-$635/st FOB range, with USD$600-$605/st FOB being the most prominent numbers reported. Week-ago prices were USD$620-$672/st FOB.

Last week, Urea prices were reported in a broad range at C$1,085-$1,120/mt FOB in Western Canada, down from C$1,130-$1,150/mt FOB in early September. Delivered pricing was also lower at C$1,110-$1,140/mt, compared with C$1,135-$1,150/mt DEL at last report.

Earlier this week, Egyptian producers report sales of  granular urea cargoes for November loadings at USD$750-$760/mt FOB. The price reflects a rebound in pricing in just 24 hours from the USD$710-$715/mt FOB sales for October shipments. The price is still well below the USD$850/mt FOB achieved during the last spurt of public sales in August.

This week, The NOLA urea market was reported to be quiet, but most sources put the last done business closer to USD$600/st FOB rather than at the high end of the week-ago range of USD$600-$635/st FOB.

North America Phosphate Last Two Weeks

According to Green Markets, last week, Hurricane Ian’s Sept. 28 landfall north of Fort Myers, Fla., sent the NOLA barge phosphate markets into a holding pattern, sources said, with players describing pulled bids and offers while the market waits to hear of any damage to production facilities in Florida. All Mosaic Florida locations moved to Hurricane Condition 4 on Sept. 27, with company assets secured in advance of a possible shutdown prior to the storm’s arrival. Ian came ashore as a Category 4 hurricane on Sept. 28. The Port of Tampa moved to Port Condition Zulu on Sept. 27, effectively halting operations at the site. Pricing was largely flat on DAP barges ahead of Ian’s arrival. Low offers were heard at a USD$730/st FOB floor early in the week, above the prior USD$725/st FOB bottom, while domestically-produced tons traded even with the week-ago USD$755/st FOB top. Domestic producers were noted reassessing posted prices on Sept. 29. NOLA MAP barges were quoted at a USD$755/st FOB low, lifting from the week-ago USD$745/st FOB floor, while sales of domestically produced MAP slated for full-October loading were reported at USD$765/st FOB, shy of the prior USD$780/st FOB top. Sources noted DAP barges in a wide USD$730-$755/st FOB range through the week, lifting from USD$725-$755/st FOB in the prior report. NOLA MAP was pegged at USD$755-$765/st FOB, a change from USD$745-$780/st FOB reported previously.

Last week, in Western Canada, MAP was pegged in a wide range at C$1,235-$1,305/mt FOB in Western Canada, up from the previous C$1,220-$1,280/mt range. Delivered tons were quoted at C$1,250-$1,315/mt in the region in late September.

Early this week, The NOLA DAP/MAP market was quiet. Reports that Mosaic will lose up to 250,000 mt of product, as a result of Hurricane Ian, may be enough to keep the market stable-to-up.