Fertilizer Market Report – July 26, 2023

News of the Week:

B.C. port strike: Union to recommend settlement deal to members

In a development that may end the B.C. port strike, the International Longshore and Warehouse Union Canada (ILWU) said Friday that it will recommend members accept a deal with the employer.

As per a notice posted on the union’s website, there will be a stop-work meeting Tuesday for the 8 a.m. shift to recommend the terms of the settlement to the membership.

The labour dispute between the union and the British Columbia Maritime Employers Association (BCMEA) shut down the province’s port facilities for 13 days earlier this month.

“The tentative agreement presented is the result of months of negotiations and mediation; we are hopeful that the voting membership, like the ILWU Caucus Leadership and Bargaining Committee, will support the fair and equitable deal as recommended by the senior federal mediator,” the BCMEA said in a statement.

The latest development comes after a dizzying week in which the strike appeared to be over, then back on, then over again.

Last week, the BCMEA and ILWU appeared to have reached a settlement after a deal was proposed by a federal mediator, temporarily halting strike action.   But the union’s contract caucus rejected the deal last Tuesday, without presenting it to members for a full vote, and by Wednesday workers were back on the picket line.

The employer then filed a complaint with the Canada Industrial Relations Board (CIRB), which ruled the job action was unlawful without proper notice, and federal Labour Minister Seamus O’Regan publicly called the action “illegal.”

The union subsequently issued a new 72-hour strike notice later on Wednesday — before rescinding it hours later without explanation, according to CBC.

Black Sea Grain Deal Collapses After Russia Pulls Out

The Ukraine/Black Sea grain-export deal has ended almost a year after its inception following Russia’s decision on July 17 to terminate its participation in the agreement, further heightening uncertainty over global food supplies. 

The pact, brokered between Ukraine and Russia in July 2022 by the United Nations (UN) and Turkey, allowed shipments of grains and other foodstuffs from Ukraine out of its Black Sea ports of Yuzhny, Odesa, and Chornomorsk to the Bosporus, without being attacked by the Russian naval blockade in the Black Sea.

Kremlin spokesperson Dmitry Peskov told reporters on July 17 that the arrangement had ceased to be in force “as of today,” and that Russia had notified Turkey and the UN that it won’t extend the deal, Interfax reported.

Moscow’s decision was not totally unexpected as it has long threatened to exit the deal (GM June 2, p. 1), last agreeing to a two-month extension in May that was due to expire on July 17 (GM May 19, p. 29). Russia also briefly paused its participation in the pact last October following an attack on it ships, although it was resumed a few days later.

Moscow has complained that parts of the Black Sea deal related to the facilitation of export shipments of Russian foodstuffs and ammonia and other fertilizer products have not been implemented.

The news of the deal’s collapse came after Russia on July 17 said Ukrainian drones damaged a key bridge linking Russia to Crimea, though Moscow later said the termination of its participation in the grain deal was unconnected to the attack.

Moscow is now cautioning against any shipments without its “security guarantees.” According to a UK Financial Times report, Russia earlier this week warned it would treat grain ships as “military targets.”

Russia has unleashed heavy drone and missile attacks since pulling out of the deal, damaging critical port infrastructure in southern Ukraine on July 20, including grain and oil terminals in Odesa and nearby Chornomorsk, destroying some 60,000 mt of grain, according to the Associated Press, citing Ukraine’s Agriculture Ministry.

Moscow has been urging all parties to the grain deal to unblock the transit of Russian ammonia so it can be exported via the ammonia pipeline that runs from Togliatti in Russia to the Ukrainian Black Sea port of Pivdennyi, formerly known as Yuzhny. Moscow is also demanding that Russia’s Agricultural Bank regain access to the international “SWIFT” payment network, which was prohibited under European Union and US sanctions.

For its part, Kyiv has said it would consider allowing Russian ammonia to transit its territory for export on the condition that the Black Sea grain deal is expanded to include more Ukrainian ports and a wider range of commodities. This week, Ukrainian President Volodymyr Zelenskyy was in talks with UN Secretary-General António Guterres to discuss restoring grain supply through the Black Sea.

World leaders have condemned Moscow for backing out of the deal, saying it threatens world food security and will lead to a further hike in prices. Additionally, the damage to Ukraine ports could take up to a year to repair even if the deal is renewed, according to Rabobank Agricultural Analyst Carlos Mera, as cited by the Financial Times.

The pact has ensured the safe passage of more than 32 million mt of crop exports from Ukraine via the Black Sea since it was signed in July 2022, helping to ease global food prices after they soared to record levels when Russia’s invasion of Ukraine forced a halt to all exports from Ukraine’s main Black Sea ports.

But the export corridor has faced repeated disruptions in recent months. Ahead of its withdrawal from the deal, Russia blocked one of the three open ports, and ship inspection times have gotten progressively longer, with fewer than one cleared per day in the first half of July.

Moreover, the volume of crop exports from Ukraine has been falling as the country’s agricultural production capacity suffers from the prolonged war. Only 2 million mt of grain were exported in June compared to a peak of 4.2 million mt last October, according to a Dow Jones report, citing UN data.

North America Urea Last Week

According to Green Markets, the latest delivered urea prices in Western Canada were reported in the C$535-C$568/mt range for July-August shipment, flat to last week’s prices.

NOLA urea moved higher on reports of firming international prices and escalating tensions in Ukraine. July barges were reported at US$335-US$365/st FOB, up from last week’s US$315-US$330/st FOB, with loaded barges quoted in the US$341-US$365/st FOB range for confirmed trades. August tons were reported at US$335-US$352/st FOB for the week.

Urea strengthened to US$395-US$420/st FOB in the Eastern Cornbelt in the wake of firming NOLA barge prices, up from the prior week’s US$380-US$400/st FOB range. Both the high and low were reported at Cincinnati, Ohio, during the week.

Urea prices firmed slightly to US$370-US$400/st FOB in the Western Cornbelt, up US$10/st from last week, with both the high and low confirmed at St. Louis, Mo.

North America Phosphate Last Week

MAP was flat week-over-week in Western Canada at C$815-C$830/mt FOB and C$810-C$825/mt rail-DEL for the latest offers.

Following a slow start to the week, sources reported NOLA DAP and MAP barge prices heating up toward the end of the July 14-20 trading period.

On the heels of early-week trading noted at a US$445/st FOB low, DAP barges firmed to a high of US$470/st FOB on July 20 for tons loading now through September, sources said, a sharp jump from the week-ago US$445/st FOB ceiling. Offers quoted at US$475/st FOB had yet to find a buyer on July 20, sources said.

MAP buyers scrambled to make purchases as well, driving the market from US$480/st FOB early in the week to a high of US$520-US$530/st FOB on July 20, up US$20-US$60/st from last week’s US$460-US$470/st FOB range.

Players generally attributed the increase to low stocks in the US market. The speedy rise in pricing, described as a response to sentiments quickly turning “very hot” and “very bullish” during the week, led many sellers to reassess their positions late in the week. “Most have pulled offers,” said one trader on July 20.

Green Markets Global Macro Comments – Is India Tempting Fate?

India

The lack of a tender call this week disappointed many in the industry. Sources now say the tender could be called as late as mid-August.

India’s Department of Fertilizers (DoF) is reportedly concerned with the rising price of urea, with sources estimating that the upcoming tender could take 1.2-1.5 million mt. The DoF may be hoping that by delaying the tender for another week or two, sources said, surpluses will build up in the urea market, forcing prices down.

While this strategy worked in the past, the number of potential suppliers for the tender has been reduced. Sources noted that China would not be able to provide large quantities of urea due to delays built into its export approval process, while Russian product is also not readily available for large quantities of exports.

Indonesia is also expected to stay out of the export market well into August, leaving the Arab Gulf as the only large supplier able to support offers into the tender.

Middle East

No urea spot sales were reported from the region, leaving the price just under US$320/mt FOB. The price should be about US$10/mt higher, sources said, based on the historical pattern of Arab Gulf and Chinese export urea prices holding roughly even.

With the July 17 shipping deadline from the previous Indian tender now passed, producers are turning attention to their other contracts. Most production is reportedly going into storage, however. These reserves are expected to represent the bulk of offers into the next Indian tender.

At midweek, sources put the Egpyt paper market at US$415/mt FOB for August. That price was quickly passed, however, as producers satisfied strong demand from both domestic buyers and European traders.

Prices may have also received a boost from a government request that producers cut output by about 30% for a short period. The government wishes to divert the natural gas from industrial use to consumer use. Sources speculated that the high temperatures plaguing the Mediterranean are increasing the use of air conditioning, putting a strain on the country’s power grid. Natural gas is needed to help produce enough electricity to avoid brownouts and power failures.

Brazil

The urea price continues to move up under steady demand, with sources putting the market at US$370-US$385/mt CFR, a US$20/mt jump from the previous week. Players reported low-cost offers of sanctioned material available in the market, with no takers confirmed so far.

Urea traders expect more price increases to come. Russia’s withdrawal from the Black Sea grain deal could push prices as high as $400/mt CFR, some said. At that level, traders said buyers should be expected to step away, forcing prices back down.

China

Export prices are moving up, sources said. Prilled urea is now pegged at US$330-US$340/mt FOB, with granular at US$340-US$350/mt FOB. No one has been able to confirm deals at these levels, however.

One trader noted that a US$320/mt FOB bid for a prilled cargo went unanswered. At the same time, reports indicated small lots of granular being sold in containers at US$380/mt FOB.

Limited requests for small tonnage from Southeast Asian buyers currently account for the bulk of the market’s business. Traders are hesitant to secure large lots of urea for the upcoming Indian tender until the shipping window is known. Sources said that if the deadline is early, such as end-September, it may be difficult to ensure the tonnage can clear the export approval process in time.

While a shipping deadline of mid- or late October could ease concerns, industry watchers seem convinced the shipping deadline will fall in September.

Industry Tidbits

• Canpotex on July 19 reported that it is withdrawing all offers for new sales following the resumption of strike activity by the International Longshore and Warehouse Union (ILWU) Canada at the Port of Vancouver and the continued loss of export capacity at Neptune Terminals, which handles approximately 70% of all Canpotex potash exports.
• Yara International ASA reported an 83% drop in adjusted EBITDA for the second quarter, to $252 million from the year-ago $1.48 billion, falling far short of analysts’ average estimate of $537.5 million (Bloomberg Consensus). The plummet in adjusted EBITDA mainly reflected lower margins with lower selling prices, which offset a decline in energy costs and an improved volume and product mix. Revenue was down 39% year-over-year, to $3.94 billion from $6.45 billion, also missing analysts’ average estimate of $4.47 billion.