Since the outbreak of the Ukraine crisis in February 2022, the international fertilizer market has been affected by various uncertainties, with tight supply and trade blocked, which has triggered some countries to reduce exports, import large quantities, and carry out some market actions that are different from those in the past, and the global fertilizer supply and demand pattern has changed. With the passage of time, the export of fertilizers from Russia and Belarus has basically recovered, and the price decline has also brought the supply and demand status of many markets back to rationality. However, the Palestinian-Israeli conflict and port strikes have led to renewed market uncertainty, and several major international fertilizer markets have also been affected to varying degrees, and the supply and demand pattern may change again.
Middle East: Production and shipping are restricted
The outlook for regional potash supply is uncertain
If there is one major uncertainty affecting the international potash market, it should be the Ukraine crisis. Now, as the crisis in Ukraine continues, the Israeli-Palestinian conflict has further catalyzed the severity of the global potash supply problem.
On October 7, 2023, the conflict between Palestine and Israel broke out, and the Israeli prime minister declared a "state of war" in the country. The Dead Sea region in the midst of the Israeli-Palestinian conflict is an important part of the global supply of potassium resources. According to publicly available data, Israel and Jordan rely on the Dead Sea to develop potash fertilizers and are the world's main suppliers of potash fertilizers. Among them, Israel Chemical Group (ICL) is the world's sixth-largest potash producer, with an annual production capacity of about 4 million tons; The Arab Potash Corporation of Jordan (APC) is the largest potash producer in Jordan, with an annual production capacity of about 2.5 million tonnes.
The continuous evolution of conflicts will undoubtedly affect the normal operation of potash fertilizer production enterprises. However, the negative impact of escalating conflict on transportation tends to be felt more than the impact on the production of potash producers.
On October 9, 2023, Israel ordered a "total blockade" of the Gaza Strip, escalating the Israeli-Palestinian conflict. Located north of Gaza, the port of Ashdod is Israel's second largest port, mainly used for the import and export of containers, general cargo and bulk cargo, and is also an important hub for Israel's potash fertilizer exports. In November 2023, Yemen's Houthi rebels hijacked an Israeli vessel, the Luanda cargo ship from Israel bound for ZIM (ZIM Integrated Shipping Co., Ltd.) in China, in the Red Sea. It is reported that ZIM is the largest cargo transportation company in Israel, and about 70% of ICL's cargo is transported through ZIM. On December 17, 2023, Yemen's Houthi forces attacked several ships as they were sailing into the Red Sea, cutting off the Bab el-Mandeb Strait. It is reported that the Suez Canal is the main alternative route for Russia and Belarus to transport potash fertilizer to Asian countries through the Baltic Sea. And for long-distance cargo ships going to take the Suez Canal route, the Bab el-Mandeb Strait is the way to go.
On January 10, Yemen's Houthi rebels fired drones and missiles into international shipping lanes in the Red Sea. The attack appears to be the largest since Yemen's Houthis began targeting commercial shipping lanes in November 2023. Since mid-December 2023, ship traffic through the Suez Canal has fallen by 14% to 50 per day due to the attacks, according to a shipbroker. The escalating crisis in the Red Sea is affecting India's fertilizer supply, with Jordan and Israel unable to ship about 100,000 tonnes of fertilizer to India, the Business of India reported on January 16.
On April 13, Iran fired more than 300 drones, ballistic and cruise missiles into Israeli territory, marking a sharp escalation of the conflict in the Middle East. It is reported that Israel's Western allies are urging Israel to exercise restraint in order to prevent a broader conflict in the Middle East, which could affect various commodities, including fertilizers.
Brazil: Expansion of planted area
Fertilizer just needs to support the market
Brazil is the world's largest exporter of soybeans and imports 85% of its fertilizer needs. Previously, since the global fertilizer supply chain was unstable due to many uncertainties such as the Ukraine crisis, Brazil has actively engaged in "fertilizer diplomacy" to solve the problem of excessive dependence on foreign fertilizers, with a surge in imports, inventory accumulation, and even in October 2022, Brazil once needed to re-export to ease inventory pressure.
The impact of high inventories continued into 2023, and the combination of falling prices fueled a wait-and-see sentiment in Brazil, which delayed the return to the market in the first half of 2023 until the end of June 2023, when Brazilian demand finally became apparent as demand for the upcoming soybean season continued to increase, but this round of demand only lasted until August 2023 and then began to fall.
However, the continued weakness of the market has not dampened the confidence of market participants in Brazil, and even when Brazilian market prices have dragged down the entire Western market, they have always believed that Brazil is only delaying purchases, not without demand. Sentiment in the Brazilian market was further weakened by falling corn and soybean prices at the beginning of the year, with farmers in Mato Grosso likely to start purchasing corn fertilizer at the last minute in early 2024 due to high inventories, according to the Brazilian National Commodity Supply Company (Conab); In mid-January, soybean barter prices were substantial, and market participants again expected that the calm in the Brazilian market would not last long, with buyers sourcing at the end of February or early March to meet demand for the second corn season (SAFRA).
Brazil did not disappoint the market either. At the beginning of February, Brazil's domestic activities began to strengthen, import demand rose, and the price of Brazilian granular potassium chloride, which has been steadily declining since mid-August 2023, finally bottomed out, rising by $5 (ton price, the same below) at the low end to $285~$290 CIF price.
The data also confirms how strong Brazil's demand is. According to data from the Brazilian Fertilizer Association (ANDA), Brazil's total fertilizer supply in 2023 reached 45.82 million tons, an increase of 11.6% compared to 2022. Although fertilizer was once re-exported due to "crazy purchases", Brazil's strong and stable demand has given Brazil the confidence to continue importing. It is reported that Brazil's high imports in 2023 will lead to high carry-over inventories in 2024. Argus estimates that Brazil's carryover stocks of potassium chloride in 2024 are around 2.5 million tonnes, well above the average of 1.8 million tonnes over the past five years. The total carry-over inventory of fertilizers reached a record 10.3 million tons. Not only that, but Brazil has also continued to maintain high imports this year. Brazil imported 852,000 tonnes of potassium chloride in January, up 63% year-on-year, surpassing the monthly record of 770,000 tonnes set in 2021 and setting a record high, according to the Global Trade Tracker (GTT).
Soybeans and corn account for about 60% of Brazil's fertilizer needs, and as the main soybean planting season approaches, higher soybean prices in Rondonopolis, Mato Grosso, further support Brazilian purchases. Brazil's imports of potassium chloride rose 7% year-on-year to 1.04 million tonnes in March. Not only that, but the area under crop cultivation in Brazil will continue to increase. It is reported that in 2024, the corn and soybean planting area in Brazil will increase to 22.6 million hectares and 45.6 million hectares, respectively. As a result, the market is optimistic about the demand outlook for fertilizers in Brazil.
However, it is worth noting that Brazil has not forgotten its desire to reduce its dependence on foreign fertilizers. Recently, the Amazon State Environmental Agency (Ipaam) issued a three-year environmental permit for Brazil Potash Corp's Autazes potash project. The project, which was originally planned to produce 2.2 million tonnes of potash per year, is considered the most promising project to reduce Brazil's dependence on imports. According to the National Fertilizer Program, the project is expected to provide about 20% of Brazil's potash fertilizer needs. The National Fertilizer Plan aims to reduce the proportion of imported fertilizers to around 40% by 2050. At present, the proportion is more than 95%.
India: Fertilizer substitution to expand production capacity
Get rid of urea import dependence by the end of 2025
India, which is also a major demand for fertilizers, has recently made some similar moves to Brazil, which was eager to reduce its dependence on foreign fertilizers. Of course, in comparison, India's measures are relatively calm, and the cycle is more long-term.
India's Minister of Chemicals and Fertilizers, Mansukh Mandaviya, recently said that India has promoted domestic production on a large scale to bridge the gap between supply and demand. By the end of 2025, India will get rid of its dependence on urea imports and stop importing urea. It is reported that at present, the gap between India's annual urea production and demand is about 4 million tons.
"The government has adopted a two-pronged strategy to end its dependence on urea imports," said Mansukh Mandaviya. On the one hand, alternative fertilizers such as nano liquid urea and nano liquid diammonium phosphate (DAP) are promoted. On the other hand, India's installed capacity has increased from 22.5 million tonnes in 2014-2015 to about 31 million tonnes currently. After the fifth plant is put into operation, the annual production capacity of urea in India will reach 32.5 million tons, and it is planned to replace 2 million ~ 2.5 million tons of traditional urea with nano liquid urea.
In addition, it is reported that Southern Petrochemical Industries Corporation Limited () has recently announced that it has completely switched to 100% natural gas for urea. This significantly reduces the total cost of fertilizer production and is expected to further improve fertilizer production efficiency.
India's declining fertilizer imports also reflect its determination to reduce its dependence on foreign countries. In 2021 and 2022, India's urea purchases were 7.89 million tonnes and 7.46 million tonnes respectively, which decreased to 5.645 million tonnes in 2023. Of course, this also reflects the increase in domestic urea production capacity in India. It is reported that thanks to the capacity release of three new 1.27 million tons units, India's urea production in the 2022-2023 fiscal year will reach 29.85 million tons, a significant increase of 19% over the previous fiscal year. In January this year, India's urea production hit another record high of 2.87 million tonnes, compared with the previous year's peak monthly output of 2.62 million tonnes.
In addition to the layered measures to reduce the dependence on foreign fertilizers, India's tenders are also a focus that cannot be ignored by the market. In February last year, instead of clarifying the market trend and determining the market benchmark, the strange mark increased the uncertainty of the market. Several rounds of bidding this year have also caused some turmoil in the market.
At the end of December 2023, the Indian government issued a urea tender earlier than the market expected, bringing a surprise to the dormant market. Judging from the closing of bids on January 4, a total of 2,711,300 tons of goods were received from 21 suppliers. Among them, the lowest price is $316.8 on the West Coast and $329.4 on the East Coast. At the time, Argus expected that India's National Fertilisers Limited (NFL) would buy more than 1 million tonnes of urea through tenders.
However, before the official results came out, there was news in the market that the National Fertilizer Company Limited of India seemed to have booked only 647,000 tons of urea in this round of bidding, and most producers in the Middle East refused to supply India at the FOB level of 300~306 US dollars. The news prompted trading companies to start covering short positions in the European market, starting with Turkey and then to southern Europe, triggering a round of rapid price increases.
On March 27, RCF conducted another round of urea bidding and received a total of 3,151,600 tons of supplies from 19 suppliers. Among them, 1,393,300 tons on the west coast and 1,758,300 tons on the east coast, the shipping schedule is until May 20. The lowest CIF price on the West Coast was $339 and $347.7 on the East Coast, slightly higher than expected, which is good for the international market in the short term. However, the industry is not optimistic about the sustainability of this support. Industry insiders expect that this round of Indian urea procurement is not based on domestic agricultural demand, but on the political significance of India's election year. Although the price is slightly higher than market expectations, which is conducive to stabilizing the international urea market in the short term, when the existing purpose is achieved, the next round of procurement will be greatly delayed, which will overdraft the future international market situation in advance. In April, only 340,000 tonnes were confirmed for this round of tenders, well below the previous forecast of 724,000 tonnes. This result sparked turmoil in the global nitrogen fertilizer market, and the industry became more bearish on the urea trend, which in turn triggered a massive global sell-off. The RCF did not comment on the reasoning behind its decision, but local sources noted that India's urea stocks were increasingly abundant, reaching 8.8 million tonnes as of the end of March.
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Please indicate in the following format: Source: Agricultural Resources Herald Author: Chen Xinrui
Editor: Ding Jiahui Review: Wang Meihong Producer: Zheng Hongyan