Nitrogen prices peak – for now

“The situation in the Arabian Gulf remains confused and volatile…”

The start of May saw urea prices start to decline from the yearly highs seen in mid-April, as buyers from India, the US, and Europe stayed away from the markets. India is not expected to return with another tender before late May or early June at the earliest, after booking 2.5 million tonnes for shipment through mid-June, covering immediate requirements, and with domestic production having improved and stocks at a healthy level of over 7 million tonnes. In the US, earlier concerns over May shipments have eased, with net import figures not as low as initially feared, and even some re-export of cargoes to Latin America where higher prices can be earned. With the potential for China to return to export sales towards the end of May and start of June, there was at least a hope that the worst of the current price spike may be over.

However, the situation in the Arabian Gulf remains confused and volatile, and supply fundamentals remain very tight. Production in Qatar and Bahrain is completely down, Iran is operating at around 50% of capacity, and Saudi Arabian output is reduced rates. Only the UAE and Oman are operating as normal, with the UAE’s Fertiglobe now confirmed to be trucking urea to ports outside of the Gulf, bypassing the Strait of Hormuz entirely, although only for relatively small volumes. Meanwhile, around 1 million tonnes of urea is still stranded on ships in the Gulf, and President Trump’s announcement of ‘Project Freedom’ to escort shipping past the Hormuz choke point lasted only for two days, during which only two civilian ships transited the Strait west to east, and leading to fresh Iranian attacks on UAE facilities and a missile strike on another civilian ship.

While talks between the US and Iran continue, and there are some indications that they may be moving closer to a deal, the potential for the disruption to continue into June remains a very real one. At the moment, CRU’s base case assumption is that a deal of some sort will be managed during May, with shipments resuming from June, and this, coupled with a Chinese return to the export market, will begin to alleviate the acute supply pressure in urea markets, but there is of course a significant chance that the talks may founder as previous ones have, and that the dislocation will continue. Notably affected at present is Australia, which is already believed to be around 50% short of its normal import requirements for May, ahead of the country’s winter crop top-dressing, which typically occurs in June and July.

Looking to the second half of the year, the market is expected to become more active as demand from Brazil and India picks up again, alongside some pre-season buying in Europe, meaning that while prices may fall from June, they may not drop by a long way until we are past peak northern hemisphere buying in August, and even then it may take prices several months for prices to drop to levels seen before the conflict.

Richard Hands, Editor