Urea price at rock bottom, says analyst

Urea prices have dropped as low as they are going to go, according to a fertilizer analyst.

“In our opinion, we’re at the bottom of the market,” said Glen Buckley, co-owner of NPK Fertilizer Advisory Service.

The price at the Gulf of Mexico late last week was US$252 per short ton.

“They have really tanked,” he said. “They’re down roughly $100 per ton from this time last year.”

Prices are down because Chinese urea exports are up.

China shipped 15.6 million tonnes of urea between September 2014 and August 2015, according to Yara International. That is up 4.8 million tonnes, or 44 percent, over the same period last year.

Svein Tore Holsether, Yara’s chief executive officer, said during a conference call announcing the company’s third quarter financial results that China continues to strongly influence world urea prices.

“During the third quarter we’ve seen higher production and lower export prices from China, which together with increased exports from Iran, Algeria and Saudi Arabia have contributed to lower nitrogen prices compared to a year earlier,” he said.

However, the pace of Chinese exports appears to be slowing with 1.8 million tons shipped in July and August compared to 2.4 million tonnes in the same period last year.

“Recently recorded prices around $250 f.o.b. per ton are likely close to break-even level for marginal Chinese producers,” said Holsether.

Buckley agreed, saying China’s nitrogen fertilizer industry association recently advised its producers to stop selling urea at prices below $250 per ton.

“This association has no power, but it is strongly recommending to its members not to do this, and it sounds like they’re falling in line,” he said.

Curtailed Chinese exports combined with large tenders from two of India’s biggest buyers will likely force urea prices higher at the Gulf of Mexico, which will result in higher prices across North America.

The U.S. imports 7.5 million tonnes of urea a year, or 70 percent of its total requirements, so the price of imports has a big influence on Midwest fertilizer prices.

China is the world’s top urea exporter, followed closely by the Middle East. The U.S. imports most of its urea from the Middle East, but Chinese exports have a major influence on Middle East prices because it is the world’s lowest cost exporter.

Buckley believes urea prices will drift higher as spring approaches but will remain well below levels of the last few years because there is still an oversupply of the product.

NPK is forecasting an average price of $280 per ton for the current fertilizer year, which runs from July 2015 to June 2016.

That would still be well below the previous four yearly averages of $317, $346, $398 and $485 per ton.

Buckley expects prices to peak in March-April at $285 per ton. He said the price response in Western Canada might be more muted because there is less competition than in the U.S. Midwest.

Other nitrogen fertilizer products are expected to follow a similar price pattern as urea, although growers shouldn’t expect as much volatility with anhydrous ammonia and UAN because there are only a few manufacturers of those products while urea is a globally traded commodity.

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