Indian tenders tighten market and highlight improved sentiment

By Alistair Wallace – Fertilizer and Chemical Research Manger
alistair.wallace@integer-research.com

and Charles Lester – Nitrogen Research Analyst
Charles.Lester@integer-research.com

Six months ago, Integer had concerns that falling domestic Indian urea consumption might push imports below 5.0 million tonnes in calendar 2017. Our forecast at the time was for a total of 5.2 million tonnes, but the high Indian stock level made us worry that actual imports could underperform our figure. However, much improved monsoons provided a boost to consumption and Indian purchasing in H2 has proved much stronger than we, or the market, were anticipating. The result has been a steady string of recent tenders that have tightened the market, pushing MENA FOBs towards the $300/t level. We have now upgraded our India forecast number and are expecting around 5.6 million tonnes of annual imports. (At the time of writing NFL had just launched its inaugural tender, but given loading will not commence until mid-December, we are unlikely to see significant deliveries of this tender’s volume in 2017.)

Two tenders ago… A urea purchase tender was announced on 1 September by Indian Potash Limited (IPL), under which it received 325,000 tonnes of its desired 500,000 tonnes. The tender closed on 8 September for shipment by 23 October. India was expected to buy larger volumes than 500,000 tonnes because of the lengthy shipment window, as well as a favourable monsoon in the country. The lowest offer was from Comzest at $241.22/tonne CFR for west coast India and $251/tonne CFR for east coast India from Amber. IPL offered a counter offer of $246.91/tonne CFR for east coast India and matched Comzest’s offer of $241.22/tonne CFR for west coast. The final price for east coast India was settled at $245.50/tonne CFR. Only 11 offers were made, totalling 729,000 tonnes, because of lack of availability out of Arab Gulf countries including Iran and Saudi Arabia, and higher margin sales into other markets such as Turkey.

One tender ago…In mid-September, the urea price increased by another $20-30/tonne in the space of a week when IPL announced another import tender on 16 September, for shipment by 8 November. This unexpectedly early tender prompted prices ideas from the Arab Gulf of around $270/tonne FOB, followed by Egyptian sales to the Americas at around $300/tonne FOB.

IPL received 16 offers for a total of 1.1 million tonnes of urea under the mid-September tender. The lowest offers received were from Aries at $284.66/tonne CFR for the east coast of India, and from Transagri at $285/tonne CFR for the west coast. These prices were almost $40/tonne higher than the previous tender, continuing the price momentum and tight seasonal supply caused by maintenance turnarounds and contract commitments from the usual sellers to India.

The latest tender…The Indian government amended its urea import policy conditions in late-September in order to ensure domestic requirements. On 26 September 2017, the government extended import licenses to two urea producers – Rashtriya Chemicals & Fertilizers (RCF) and National Fertilizer Limited (NFL). Previously, only STC, MMTC and IPL were permitted to issue import tenders.

RCF issued its first import tender on 14 October, receiving 17 offers totalling 1.4 million tonnes. The lowest offers received were from Aries at $290.66/tonne CFR for east coast delivery, and from Fertrade at $291.72/tonne CFR for west coast. RCF ultimately sourced 426,000 tonnes of urea under the tender from a combination of Middle East, Chinese and Baltic sellers, at prices around $5/tonne than the previous purchase by IPL.

However, this is only half the story, as supply constraints in the MENA region look to be just as an important a driver of this price rally

There has been significant series of planned and unplanned capacity outages in the MENA region over the last six weeks which combined with these tenders has tightened markets East and West of Suez. Algerian exports have more than halved this year, given the shutdown of the AOA plant in February 2017 (owing to litigation with the EPC contractor) and the difficulty the plant has had restarting this month. (The other Algerian plant, Sorfert, has also struggled with its operating rate this year, but this has mainly affected ammonia exports). In the Arab Gulf, SAFCO IV (Saudi Arabia) and Fertil II (UAE) are down for planned maintenance, while QAFCO IV and SAFCO V are both due to be taken offline in November.

Each of these plants has a rated capacity of over 1.0 million t/y and in total there is currently around 4.5 million t/y of annual capacity closure in the MENA region, equating to the loss of 375,000 tonnes of monthly availability.

We can add Kaltim V in Indonesia to this list, along with Togliatti Azot in Russia, both down for unplanned maintenance. These two plants combined equate to an annual capacity of 1.6 million t/y, and will resulted in a further loss of 135,000 tonnes of monthly availability. At the time of writing, both Kaltim V and AOA are restarting production, but had not yet returned to full, stable and on specification output.

The combination of these supply outages, recent Indian tenders and strong seasonal buying in the Atlantic are putting an upwards pressure on FOB prices. And unless there is a significant drop-off in import demand, these supply constraints should at hold prices at current levels until at least the new year.

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