China exports up | The country will be ‘swamping the market with a lot of this stuff,’ says analyst
Farmers are advised to hold off on fertilizer purchases because strong urea exports out of China should drive down nitrogen fertilizer prices by late summer, says an industry expert.
“I would not recommend to anybody right now to start pricing any fertilizer for fall usage yet,” said David Asbridge, president of NPK Fertilizer Advisory Service.
China exported 7.2 million tonnes of urea between July 1, 2012, and Feb. 28, 2013, up from three million tonnes for the same period a year earlier.
The supply influx has kept urea prices in check during the first quarter of 2013, despite strong pre-buying of the product from growers in the United States and Western Europe, according to a report on Yara International’s first quarter results.
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PotashCorp offered a similar perspective during its first quarter results.
“We have seen significantly more (urea) imports come into North America in anticipation of large corn acres being planted,” said PCS Sales president Stephen Dowdle.
“Now that planting is a bit delayed, we’ve seen a little pressure on the market. We’ve seen some price weakness there as people have sought to liquidate some of their holdings.”
There doesn’t appear to be any letup in store for Chinese exports. Yara said the Chinese urea export tax will fall to a minimum two percent as of July 1, down from 77 percent today, and will stay there until Nov. 1.
“Urea production in China has increased so far in 2013 and a continuation of this trend would increase the probability of significant second-half urea export volumes from China,” the company said.
The outlook prompted one investment analyst to conclude that Yara was hinting urea and other nitrogen fertilizer prices will be “materially lower” in the second quarter of 2013, according to a Seeking Alpha transcript of the company’s conference call with analysts.
Asbridge expects nitrogen fertilizer prices to plummet following spring seeding.
“Starting July 1, when they’ve got that low tax situation, (China) is going to be kind of swamping the market with a lot of this stuff,” he said.
Urea prices are already falling in the Gulf Coast, hitting $380 per tonne late last week, down from $400 per tonne a few weeks earlier.
“We’re looking at a good possibility right now of urea prices at the Gulf Coast dropping another $75 to $80 per tonne,” he said.
Urea sets the tone for all nitrogen fertilizer products.
Farmers won’t likely see reduced prices at crop input retailers until the end of summer because wholesalers and retailers have stocks of high-priced product in their warehouses that they’ll need to get rid of first.
Asbridge was originally forecasting that urea prices would drop to $330 to $340 per tonne by summer, but he is now forecasting it could go as low as $300 per tonne because of the unexpected volume of Chinese exports.
That is good news for farmers and fertilizer retailers, said Greg McDonald, general manager of Grow Community of Independents. His member companies tend to stock up on fertilizer with summer fill contracts in July and August.
“It tends to be the lowest price of the year,” he said.
By the sounds of it, prices could be lower than usual this summer.
“Anytime you can purchase a tonne of product for less, it ties up less cash flow and there’s less risk involved, so it’s positive as long as there is the traditional appreciation in the market,” said McDonald.
Asbridge said China is determined to be self-sufficient in key crops such as corn, so it has intentionally overbuilt its nitrogen fertilizer capacity in anticipation of increased domestic use in coming years.
The country has 485 nitrogen fertilizer plants, including 114 urea plants, 20 of which have a urea production capacity of more than one million tonnes per year, according to a 2011 report produced by the China National Chemical Information Center’s fertilizer department.
It is most efficient to run those plants as close to capacity as possible, which is resulting in a glut of product.
Asbridge said there is probably more overproduction than usual this year because seeding has been delayed due to wet and cold conditions in northeastern China, which is an important growing region for the world’s second largest corn producer.
Another factor that may influence urea prices is the wet conditions in the U.S. corn belt, which may force farmers to use less anhydrous ammonia fertilizer and more urea and UAN.
Anhydrous has to be knifed into the soil and it may be impossible to do that in the wet soil.
The increased demand for urea could partially offset the price-depressing influence of China’s strong export program.
