nternational fertilizer market absorbing impact of Russian invasion
Julia Meehan
25-Feb-2022
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LONDON (ICIS)–Across the international fertilizer market, producers, wholesalers, cooperatives, traders and the farming community are all fearful and uncertain about the outlook following the Russian invasion of Ukraine.
Russia is the largest fertilizer exporter in the world and without its exported tonnes, there will inevitably be a shortage felt across the globe. A shortage will mean a sharp rise in fertilizer prices, this is without factoring in soaring gas and ammonia costs.
Prior to the conflict, the international fertilizer market experienced record high costs on the back of rising gas prices, but these past weeks prices started to ease as demand failed to return as many had expected. This was in part due to buyers holding off purchasing in the hope that prices would continue to ease.
This scenario was seen across every fertilizer market, but overnight the situation changed.
AMMONIA
Conflict in Ukraine overshadowed the entire market, with the loss of Yuzhny volume for an indefinite period creating concern.
The unprecedented situation facing producers, traders and buyers saw spot activity almost grind to a halt as players quickly tried to assess positions and conditions.
Amid the uncertainty, the main issue was how, and if, the market can handle the loss of more than 200,000 tonnes/month of Black Sea volume.
Buyers in north Africa, Turkey, Bulgaria and India rely heavily on Russian material and alternate supply sources may be challenging to come by, particularly at short notice.
In addition, potential sanctions on Russian volumes in the Baltic would create an even tighter supply squeeze, as would large increases in European production costs due to soaring natural gas (natgas) prices.
UREA
Urea prices increased overnight, by as much as 22% in Egypt, as natural gas prices soared. Granular urea sales in Egypt have been concluded as high as $730/tonne FOB (free on board), compared with $600/tonne FOB at the start of the week.
In the US, barge values in New Orleans traded at $705/short ton FOB Nola for March, up $165/short ton from $540/short ton FOB the previous day.
Russian supply is expected to be disrupted because of likely sanctions on urea and ammonia sales, which will greatly reduce world supply.
Western banks are already believed to have stopped processing letters of credit (LCs) and guarantees for Russian companies.
Production at European urea and nitrogen plants may also be impacted because of high gas prices.
Most urea producers have now withdrawn offers as they wait for more clarity on the situation.
AMMONIUM NIRATE
The international ammonium nitrate (AN) market is looking very uncertain. Russia is a major exporter of AN to Latin America and parts of Europe.
AN is the preferred nutrient used by Russian farmers, and exports are typically limited during winter because producers are obliged to serve the domestic market rather than achieving better netbacks from selling abroad. Russia produced 4.392m tonnes of AN in 2020, according to the International Fertilizer Association (IFA).
PHOSPHATES
There are worries that any sanctions on Russia will affect phosphates exports, especially at a time when global demand is picking up.
In India, two Saudi diammonium phosphate (DAP) cargoes were sold for March loading. DAP buyers otherwise are on the side-lines due to the tight availability in the market, as exports from China have been delayed. Also, talks are ongoing for Q1 phosphoric acid contract prices and an increase is expected.
On the other hand, in China there was a rumour that the ban on phosphates exports will be lifted from 15 April, but this has been widely denied. Apart from that, there was not much product available for export.
Market participants are looking at Russia and whether it will have export availability for the spring, especially to Brazil, the US and Europe.
POSTASH
Players at all levels of the global muriate of potash (MOP) fertilizer market are waiting for the potential impact on the industry of Russia’s military operations in Ukraine – and crucially, what sanctions may be levelled at Moscow as a result.
Currently it is thought Russian fertilizer operations broadly continue as normal, with traders and producers alike saying it is too soon to estimate if any potential sanctions will affect exports of urea, phosphates or potash.
Any firm financial or banking sanctions on Russia would hit exports and boost fertilizer prices globally, although there is uncertainty on the type of sanctions that may be issued.
Should any sanctions be placed on Russian MOP exports the impact would be felt immediately, as separate sanctions placed on Belarus’ own vast MOP export business have already caused a logistical nightmare for the industry.
SULHUR
Sulphur sentiment is bullish, but largely uncertain, as market players focused their attention on the Ukraine-Russia conflict. The latest development has not had any immediate impact on sulphur, but uncertainty looms as the crisis unfolds.
Any future impact is expected to first be seen by the likes of Brazil. It could then possibly lead to product being imported from Asia-Pacific.
The market is also closely observing the impact on related products. Ammonia availability could lead to a reduction in phosphates production, and subsequently, lower sulphur demand.
Demand is relatively slow on the Yangtze river, as Chinese authorities are reorganising stock arrangements along the river ports.
In the Americas, much of the focus was on CMOC’s import tender.
The Federal Customs Service of Russia’s fertilizers import and export data for February 2021, is accessible via the ICIS Supply & Demand Database.
Additional reporting ICIS Fertilizer team