From Nikkei Asia, June 23:
Industry figures divided on market's future direction
BANGKOK/SHANGHAI -- Fertilizer prices have fallen sharply since the end of April, providing relief for farmers battered by spikes following the outbreak of the Iran War. However, some industry insiders have warned that the market could remain turbulent for months.
Urea is the most common nitrogen-based fertilizer, one of three key elements for plant growth, along with phosphorus and potassium. Most urea is produced using natural gas, and some 30% to 35% of global exports usually pass through the Strait of Hormuz, according to the United Nations Food and Agriculture Organization. When the strait closed after the war started on Feb. 28, the spot free-on-board Middle East urea price per metric ton shot up from $492.50 per metric ton to $900 on April 23.
Farmers, particularly in many Asian countries, scaled back their use of fertilizer or held off planting out of fear they would only harvest financial losses due to increased prices for fertilizer, fuel and other inputs and warnings about the looming El Nino weather phenomenon.
But prices then started dropping, reaching prewar levels in the first week of June, before the ceasefire was announced.
Several factors are behind the downtrend, with lower demand, the result of the higher prices, and China's authorization of new exports in late May being the main catalysts, experts told Nikkei Asia. The announced Iran-U.S. ceasefire could provide further downward pressure on prices.
"The primary driver for the recent 'free fall' in the urea prices has been the lack of demand," said Pranshi Goyal, senior urea analyst at commodity consultancy CRU Group. "May is a seasonally slow month. Moreover, poor affordability has deferred stocking up decisions, and buyers [are sitting still] in the hope that a resolution in the Middle East is reached soon.
"In June, price declines have extended further with the return of China, a key exporter, which had restricted its exports since the beginning of the year."
The Chinese government has not publicly announced an easing of export curbs. However, Reuters reported in late May that it had issued fresh export quotas.
Analysts said the apparent move was in response to weaker domestic demand. As of June 10, domestic urea inventories had risen 7.6% from a week earlier to 959,400 tons, according to Chinese data provider OilChem. It attributed the increase to a temporary lull in agricultural fertilizer demand, weak industrial demand and stockpiling by producers expecting export restrictions to be relaxed....
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