Nearly 150 attendees were on hand in Arlington, Va., for the 2007 Fertilizer Outlook and Technology Conference Nov. 6-8, sponsored by The Fertilizer Institute and The Fertilizer Industry Round Table. A range of speakers offered plenty of optimism for the industry, fueled by growing biofuels demand and expected increases in corn and wheat acreage in 2007. The optimism was tempered, however, by transportation concerns and regulatory uncertainties involving the changing political landscape after the midterm elections.
In the keynote address, USDA Economist Keith Collins said that biofuels demand will continued to grow globally, which will pull up crop prices and incomes. Following 2005, when a smaller corn crop resulted in carry-over stocks dropping by 50 percent, Collins said corn will be the big story in agriculture over the next few years due to the demands of ethanol production.
Bob Dinneen of the Renewable Fuels Association said the rate of growth for the ethanol industry in the U.S. “has simply been phenomenal,” with 106 plants currently in operation and 44 in construction. “This is not going to be forever a corn-derived fuel industry. Clearly other feed stocks are necessary,” he said. “While ethanol is not a panacea, it most certainly is part of the answer.”
Judith Taylor of ICIS outlined “the green push” of the Energy Policy Act of 2005, referring to bio-diesel as “more of a frontier market” than ethanol, which already has a foothold in the commodity market. Taylor said America is well capitalized to take advantage of the biofuels push, while biofuels and other bio-based products “offer rural America its largest new opportunity in history.” As to the food vs. fuel debate over corn demand for ethanol, Taylor said the market “will find its balance by utilizing novel ways to make ethanol,” including enzymatic activity to produce cellulosic ethanol.
John Urbanchuk of LECG LLG discussed the various ethanol production processes, and also quantified the growing ethanol demand; 2006 will produce 5.1 billion barrels of ethanol, he said, while corn used for ethanol has grown from 75 million bushels in 1981 to 1.7 billion bushels by 2005/06. As for 2007, Urbanchuk said 2.1 billion bushels of corn will go to ethanol production, with a 4 billion bushel ethanol demand predicted by 2015. Ethanol accounted for 14 percent of corn uses in the U.S. last year, he said. Urbanchuk also outlined the costs of producing ethanol, concluding that, even at today’s high corn prices, “ethanol is profitable.”
Not all the news was rosy for the industry. Joe Prochaska of Prochaska & Company consultants outlined the changing retail landscape, noting that there were 25 percent fewer ag retailers in 2006 than there were in 2002. Retailers have been impacted by energy prices, a shift from crop protection to genetics and seed strategies, and continued consolidation, with national distributors extending their retail market coverage and focusing more on specialty markets. Ag retailer trends include expansion through acquisitions, fewer but larger independent retailers, the growth of professional management, and the strong presence of local cooperatives.
“Retailers are gaining a comparative marketing advantage with the proliferation of products and technologies that have to be sorted out for the grower,” he said, noting a strong alliance between genetics and crop nutrition in the future. “Retailers are less differentiated by structure going forward than by the services provided.”
Tom Williamson of Transportation Consultants Co. presented a sobering look at the transportation crisis facing the fertilizer industry. Railroads have seen record demand for their services and are instituting “hyper rate increases,” as well as increased charges for all accessorial services. Added to this are the shipping demands of expanded ethanol production, coupled with consolidation that has seen the railroad industry go from 31 Class One railroads in 1985 to just seven today. As a result, railroads are taking large rate increases, especially for single-car shipments; are building the costs of their own inefficiencies into the rate system; and are using technology to determine the cost and profitability of all shipments. Railroads must increase capacity, Williamson said.
Truck, barge, and ocean freight has also increased dramatically due to high demand. Truck freight has been impacted by high diesel, tax, and insurance costs, and highway delays have increased 180 percent in the last 15 years, he said. World demand, powered by China, has pushed ocean bulk cargo rates up by over 100 percent in the past 20 months, he added, and river infrastructure in the U.S. is in need of extensive repairs.
Risk management options for shippers include hedging rail transportation by utilizing pool cars, hedging fuel surcharges via futures markets, and expanding tracks and loading/unloading equipment. “Efficient shippers and receivers will share the benefits by reduced rates,” Williamson said.
Transportation was also one of the “high profile issues” outlined by The Fertilizer Institute’s Pam Guffain, along with chemical facility security, ammonium nitrate sales tracking, future Farm Bill programs, and efforts to combat methamphetamine production. A continuing concern for the fertilizer industry is the effort by railroads to be relieved of their common carrier obligations to transport toxic-by-inhalation products such as anhydrous ammonia and chlorine, Guffain said.
Tip O’Neill of International Raw Materials noted his company’s transformation from an exporter to an importer. “We’ve all had to change on a dime,” he said, referring to the shutdown of 50 percent of U.S. nitrogen production in the last five years. “We are set up as an export nation, but now we’ve swung to an import nation,” he said. The challenges that result include limited import infrastructure, limited barge capacity, and an indifferent rail system. “Where is the fertilizer coming from for this big 2007 corn crop?” he asked.
O’Neill said world markets are now driving North American fertilizer prices, and emerging nations are dominating new production capacity. As a result, supply lines are dramatically longer and prices are much more volatile. “The retail dealer is just apoplectic about price volatility,” he said. He cautioned, however, that “just-in-time delivery is a mirage,” with supply lines now 90-120 days out.
O’Neill concluded by encouraging attendees to embrace and anticipate change. “Those that embrace change will survive,” he said. “History tells us that most of the companies that will be successful in our industry tomorrow are not around today.”
A wide range of other issues and technologies were covered at the conference. Kish Shah of Shah-4SHE outlined the steps the EU has taken to secure ammonium nitrate. “Activities concerning AN-based fertilizers are highly regulated in the EU to ensure safety and security,” he said, noting the product’s excellent safety record since the 1950s and its efficiency as a nitrogen fertilizer. “We must safeguard plants and products throughout the distribution chain in an effective and convincing manner,” he said.
Virenda Singh of Moodys Economy.com highlighted the economic and agricultural outlook for China and India, noting that both countries’ economies are “firing on all cylinders,” although a decline in GDP for both countries is expected after 2006. Singh, along with Rob Rennie of Spur Ventures Inc., outlined several uncertainties going forward, including the loss of arable land, a growing rural-urban divide in China, and rising social tensions, centered primarily around property rights. “China is neither a democracy nor a free-market economy,” Rennie said. “It is still a planned economy.” India’s largest social and political risks include terrorism and a weak central government, Singh said.
Claude Corkadel of Rentech Inc. explained the Fischer-Tropsch coal gasification process, highlighting the Rentech Energy Midwest ammonia plant at E. Dubuque, Ill. The plant will be online with its new gasification system by the end of 2009, while other gasification projects, including one in Natchez, Miss., and others in Montana and Wyoming, are being studied. Coal-to-ammonia fertilizer “provides a high margin, high value alternative to natural gas,” he said.
Other presentations included Terry Tindall of the J.R. Simplot Co. on the company’s Avail coating technology; Paul Fixen of the Potash and Phosphate Institute on phosphate use efficiency; Dennis Baron of Magic Green Corp. on micronutrients and Nano Technology; Greg Evanylo, a Virginia Tech professor and extension specialist, on the heavy metals content added to soils by animal manure and other sources; Gary Burau of Waconia Manufacturing Inc. on the role of mega distribution centers in the supply chain; Garry Wagner on AAPFCO activities; and IFA Director General Luc M. Maene on fertilizer’s role in meeting global nutrition challenges.
Mike Rahm of the Mosaic Company led the 2007 Fertilizer Outlook and Technology Conference’s Tuesday session with a bullish outlook for potash in 2007. The potash market looks increasingly tight in 2006/07 due to improved global demand and the loss of Uralkali’s Berezniki 1 mine, Rahm said, adding that the “supply shock” of the Uralkali mine failure will reduce global potash supplies by 1.2 to 1.4 million mt KCL. Any other surprise – such as additional losses, delayed expansion startups, and stronger or earlier demand – will likely tighten the market further.
Rahm said Canadian potash exports are projected to rebound 50 percent this year from the low of last year, while domestic shipments are expected to jump 22 percent. Projected exports are 25 percent greater than the three-year average, and 37 percent greater than the five-year average, he noted. Potash import demand is projected to rebound to record levels, while Chinese potash imports are forecast to rebound 17 percent, or 900,000 mt, from the lowest levels in 2006.
Indian fundamentals remain positive, he said, with potash imports expected to rebound 33 percent, or 700,000 mt, in 2007 from the low in 2006. No potash recovery is expected in Brazil in 2007, but the oilseed markets there are beginning to perk up.
The higher domestic potash demand is being driven by growth in U.S. corn demand and better corn prices, with the 2007 new crop price climbing steadily since mid-September. Referring to the recent $1/bushel increase in corn prices, Rahm talked of the “good correlation” between corn prices and potash application rates, and predicted that U.S. potash use will rebound 7-8 percent in 2006/07 due to more corn and a partial recovery in application rates. U.S. potash imports from offshore origins are forecast to decline this year, he said, while North American production is off 17 percent so far this year compared with the first three months of last year.
When asked if the 2007 planting season will see any shortages due to transportation issues, Rahm said he was “reluctant to cry that the sky is falling, but the odds are elevated this year” because of the amount of product that must be moved within a shorter time frame. Rahm added that this supply issue is compounded since many retailers are “gun shy because of the tremendous volatility we’ve seen.” He said the industry has seen a lot of interest in risk management tools to deal with pricing volatility in an era of high energy prices. “It’s a challenge for the industry, and we’re trying to do some things to share the risk,” he said. “It’s the volatility that kills, and anything to reduce that volatility will help.”
Corey Giasson of PotashCorp gave the phosphate outlook, noting that domestic phosphate fertilizer shipments are projected to pick up. Domestic consumption is forecast to be up 10-15 percent in 2006-07 due to rising grain prices, along with more corn and wheat acres. The upturn follows two years of consumption cutbacks, however, with consumption down 3.9 percent in 2004/05 and 10-15 percent in 2005/06 when compared to the 2003/04 year.
Giasson said global DAP, MAP, and TSP demand will increase this year in key markets, with phosphate demand in China the largest of any country and expected to grow by 4 percent in 2006/07. China will become a net exporter due to increased domestic production, but will continue to import about 1.3 to 1.5 million mt through the end of the decade.
DAP and MAP demand continues to increase in India, which has now replaced China as the world’s largest phosphate importer, with 2.5 million mt of imports needed in 2007. As for long-term supply issues, Giasson said the additional production slated to come online in Saudi Arabia in 2010 will cause the global phosphate market to weaken.
Giasson also addressed the question of planting season supplies at the retail level, noting that “just-in-time delivery is obviously very tough in this industry.”
Agrium’s Jeff Holzman said North American nitrogen demand will be driven by increases in corn and wheat acreage, rising crop prices, and positive farm cash flow. Although farm input prices are likely to remain high, Holzman said U.S. nitrogen demand should be up 5-8 percent in 2007 after two years of declines. He added that improved agriculture fundamentals will also favor increased global demand for nitrogen, and this demand growth, along with some plant closures, should offset new capacity.
China’s urea export volumes have been a major swing factor in the global urea market, Holzman said, with China’s urea exports going forward likely to remain in the 1-2 million mt range. He noted as well that India is now the second largest global urea importer.
Holzman said nitrogen production costs have more than doubled in key export and import regions, and new nitrogen capacity is being located in regions with access to low cost gas. Other trends include the continued decline of ammonium nitrate use, as well as rising handling and transportation costs associated with anhydrous ammonia. Noting Agrium’s efforts in the controlled-release market, Holzman said controlled-release nitrogen will have “a nice fit” over the long term.
Chris de Brey of The Sulphur Institute said hurricanes Katrina and Rita heavily impacted sulfur production in 2005 and well into 2006 across all categories, with production trending back upward in 2007. As for the sulfur consumption forecast, de Brey said the strongest growth will occur in developing regions such as East Asia, Africa, and Latin America, with declines in Western Europe and North America due to the closure of phosphate plants. Fertilizer remains the largest use of sulfur, and this is projected out through 2015 with a 2 percent annual growth rate for phosphate fertilizer as a major demand source for sulfur.
Rich Pottorf of Doane Advisory Services gave a bullish crop outlook overall, noting that world grain production is falling short of consumption, and stocks-to-use ratios for corn, wheat, and rice are about as low as they’ve been since the early 1970s. Corn stocks are large but falling, with ethanol production and exports fueling the growing demand. Corn used for ethanol increased 20 percent last season and will rise by 30 percent in 2006/07, he said, calling this increased demand “the heart of the story.” Corn acreage in 2007 will need to rebound “a lot,” he added.
The outlook for soybeans, by contrast, is “not great,” Pottorf said, noting that stocks are high after acreage increases in 2006, with demand showing little growth. Soybean acreage in 2007 will decline, especially in the Cornbelt, but bio-diesel remains a positive and “surely will grow.” Pottorf said sizable demand is expected for soybean oil over the long haul for the bio-diesel industry.
The outlook for cotton is declining, Pottorf said, with acreage reductions expected in 2007. This year’s crop was impacted by drought but still produced the third largest yield on record, and a new forecast of 20.7 million bales has resulted in price weakness. As for wheat, Pottorf said 2-2.5 million more acres of wheat will be planted this year after a 2005/06 production year heavily impacted by drought, but wheat acreage overall has been falling and the long-term trend remains down.
On the farm level, Pottorf said crop cash receipts will be up in 2006, and farm income will stay well above the average. As for the spring 2007 fertilizer season, Pottorf said “demand is going to be really strong, and I think [the retailer] knows that.” Concerns about fertilizer pricing volatility notwithstanding, Pottorf said, “If I’m a retailer, I want to be loaded up.”
The Saskatchewan Wheat Pool Inc. (SWP), Regina, Sask., has made a formal offer for Agricore United’s outstanding limited voting common shares, Series A convertible preferred shares, and its unsecured subordinated convertible debentures. SWP said the offer would bring the country’s two leading agricultural companies together in an effort to create a strong Canadian agri-business and drive significant new value for shareholders, farm customers, and destination customers.
“Our proposal would give Saskatchewan Wheat Pool and Agricore a stronger and more diversified presence amidst the growing demands of a highly competitive marketplace. We are attempting to create a significant agri-business with decades of expertise, superior assets and a truly unique home grown Canadian advantage. By combining operations we will create the scale and scope of operations to enhance Western Canada’s position in a global environment,” said SWP President and CEO Mayo Schmidt.
SWP said its preliminary analysis is that the combination would form the pre-eminent Canadian agri-business, producing adjusted combined revenues of approximately $4.3 billion and estimated synergies of approximately $60 million, representing 28 percent of pro forma EBITDA for 2006, that would drive both financial and shareholder returns.
SWP said holders of Agricore’s voting common shares would receive, based on trading prices at the close of business on Nov. 7, 2006, a premium of approximately 13 percent of the value of those shares. At these prices, SWP would acquire Agricore on the basis of each outstanding limited voting common share of Agricore being exchanged for 1.35 common shares of SWP, each outstanding $1,000 principal of convertible unsecured subordinated debentures of Agricore (excluding convertible debentures held by U.S. residents) being exchanged for 180 common shares of SWP, and each outstanding Series A convertible preferred share being acquired for $24.00 in cash plus accrued and unpaid dividends.
SWP said it presented an offer to Agricore, Winnipeg, on Oct. 24, and followed Nov. 7 with a second letter in pursuit of a supported transaction.
Agricore said its board of directors will meet to consider the unsolicited proposal and will respond in due course. In the meantime, Agricore said it will not comment on the offers and will not speculate as to any future course of action it might take. Security holders are urged not to tender their securities pending completion of this review and recommendation from the board.
SWP and Agricore, in addition to being involved in the grain business, both sell a large amount of fertilizer and other crop inputs, primarily into the Western Canadian market. SWP estimates the total Western Canadian fertilizer market to be valued at $1.7 billion.
SWP has around 100 retail farm supply outlets, and had agri-product sales of $514.2 million for the fiscal year ending July 31, 2005. Crop nutrient tons sold were estimated at 618,000 mt. SWP has a 43 percent ownership position in Western Co-operative Fertilizers Ltd., which in turn has a 34 percent ownership in Canadian Fertilizer Ltd., a major nitrogen manufacturer in Medicine Hat, Alberta. WCFL is the primary supply source for all fertilizer sold by SWP. Company-wide, net earnings were $12.1 million on sales of $1.4 billion.
Agricore sells crop inputs at 83 elevators and 106 stand-alone centers in Western Canada. Agri-product sales were $815.8 million for the fiscal year ending Oct. 31, 2005. For the year, the company sold 994,000 mt of crop nutrients. Company-wide net earnings were $12.5 million on sales of $2.8 billion.
Washington-The U.S. International Trade Commission unanimously voted Nov. 6 for a full five-year sunset review concerning the antidumping duty order on imports of ammonium nitrate from Ukraine. As a result, the commission will conduct a full review to determine whether revocation of the order would be likely to lead to continuation or recurrence of material injury within a reasonably foreseeable time. This will include a public hearing and the issuance of questionnaires. All six commissioners concluded that both the domestic group and respondents provided adequate responses so as to warrant a full review. On Sept. 21, 2001, the U.S. Department of Commerce issued an antidumping duty order on imports of AN from Ukraine. The 2001 fight was very contentious (GM July 23, 2001, p. 1) and a 156.29 percent dumping duty was set.
Calgary-Agrium Inc. has decided to continue with Phase 2 of a coal-gasification project that would serve its Kenai, Alaska, nitrogen plant. This after the Department of Energy concluded Phase 1, giving the nod to future coal-gas development. “There are differences between what the Department of Energy looked at and what Agrium is considering,” Agrium’s Lisa Parker told Green Markets. “Despite the differences – DOE examined an IGCC (integrated gasification combined cycle) plant and Agrium eliminated this option – there are some areas where the study compliments the work that Agrium has been doing these past two years. The DOE study came to the conclusion that it is technically and economically feasible to have a coal gasification facility here in Cook Inlet.” Phase 2 will include the beginning of environmental permitting, front end engineering design (FEED) study, and project financing. Parker said after Phase 2, Agrium will decide whether to continue to the next phase. Should it proceed, Parker said the company would focus on urea production, using existing plants and producing 3,200 mt/d. Agrium is looking at a pulverized coal method that would use less coal than that considered for the IGCC plant – it would use approximately one ton of coal per one ton of urea.
Washington-President George W. Bush urged a lame-duck Congress last week to pass bipartisan energy legislation that would allow drilling on the Outer Continental Shelf. Such legislation may be more difficult once the Democrats take control of Congress in January. Without passage in 2006, the drilling legislation would have to start from scratch. Current Senate Minority Leader Harry Reid has endorsed passage of the legislation and said it was one of his priorities for the lame-duck session. To date, the House and Senate have been unable to forge a final agreement. The House bill is more broad-based, allowing drilling in the Atlantic, Pacific, and Gulf Coasts, whereas the Senate focuses on the Gulf. Expectations are that the Congress will have to either quickly compromise or go with the less controversial Senate bill.
Piper City, Ill.-Local and state investigators, along with company officials, are searching for the cause of a major fire that destroyed a combination bulk chemical and warehouse building at the Heritage FS fertilizer plant here early Sunday, Nov. 5. Heritage officials said their Piper City operations are shut down at least temporarily, but customers are being taken care of by two other company locations only a few miles away. Dave Cochran, environmental regulations manager, could make no estimate of the loss as yet, but said trucks, loaders, and packaged agriculture chemicals, including herbicides, were destroyed. He said the DAP, potash, and other fertilizers warehoused in another building were not affected by the fire. “It was a bad timing for us with the fall season just getting underway,” Cochran remarked. “But our customers will be driving only a few extra miles to our other locations.” “The EPA brought in a decontamination unit out of Champaign,” Piper City Assistant Fire Chief Don Hitchens told the local press. “Everybody had to be decontaminated.” He said EPA also evacuated residents within a five-mile radius to the north and east of the plant, but most of them were allowed to return Sunday night.
Kilgore, Texas-Martin Midstream LP reported a $500,000 drop in net income for the third quarter ending Sept. 30, 2006, to $4.3 million ($.32 per unit) on sales of $147.5 million, versus the year-ago $4.8 million ($.56 per unit) on sales of $112.8 million. Nine-month net income was up, at $13.9 million ($1.05 per unit) on sales of $427.4 million, compared to the year-ago $11.3 million ($1.31 per unit) and $293.8 million, respectively. “While our terminalling and natural gas services segments performed well in the third quarter, our sulfur and fertilizer results were disappointing due to reduced volumes and increasing freight costs, respectively,” said Ruben Martin, Martin Midstream GP LLC president and CEO. “In addition, we experienced a slight decline in the performance of our marine segment due to unanticipated repairs and maintenance expenses.” Excluding 2005, he said the company traditionally experiences a seasonal decline in the third quarter. He expects the company to see improvement in the fourth quarter and in 2007 as it benefits from its 2006 growth plan. Sulfur revenues were down in the third quarter, to $13.7 million from the year-ago $16.8 million. YTD they are up, at $46.7 million from $17.7 million, due in part to the acquisition of CF assets. Third-quarter fertilizer revenues were up, at $9.2 million versus the year-ago $7.6 million. YTD is up as well, at $33.3 million versus $26 million.
Vincent Hayden, 62, Owensboro, Ken., passed away Nov. 8. He retired after 29 years as manager of Big Rivers Agri-Supply, a division of Miles Farm Supply. He is survived by his wife, two sons, and four granddaughters. Services are to be held Nov. 11 (see http://www.glennfuneralhome.com). Memorial contributions may be made to the Television Mass Programming, c/o Our Lady of Lourdes Catholic Church, 4029 Frederica St., Owensboro, Ken. 42301, or to St. Jude Children’s Research Hospital, 501 St. Jude Place, Memphis, Tenn. 38105-1942.
U.S. Gulf/Tampa: The Tampa ammonia price rolled over again last week, with sources saying major players have decided on business of $310/mt DEL for the second half of November. Sources speculated such would be the case after PotashCorp opted to continue at $312/st mt for tons to Ineos. Some last week suggested that sellers were lucky to get a rollover, as some players thought there was a little too much ammonia in the market.
Eastern Cornbelt: Sources continued to quote the anhydrous ammonia market at $345-$355/st FOB regional terminals. Agrium’s anhydrous ammonia postings moved on Nov. 9 to $355/st FOB Niota, Ill., and Terra’s reference price at Courtright, Ont., firmed again on Nov. 8 to $370/st FOB. List prices from the co-op were reported in the $355-$365/st FOB range in the region last week, with forward contract offers for December ranging from $375-$385/st FOB, depending on location.
Western Cornbelt: Sources reported little change to the spot fertilizer markets last week, and fall movement was reported in all three states. Ammonia pricing was unchanged at $330-$345/st FOB regional terminals. Terra’s postings firmed again on Nov. 8 to $350/st FOB Whiting, Iowa, Port Neal, Iowa, Blair, Neb., Greenwood, Neb., and Mankato, Minn.
Southern Plains: Enterprise Products Co., which operates the Midstream Magellan ammonia pipeline, told Green Markets last week that the pipeline was back in operation as of Nov. 8 at noon near Clay Center, Kan. It suffered an outage due to a leak Oct. 25. Enterprise said no major injuries were reported from the incident and only a few residents had to be evacuated. Local reports were that some eight cattle were killed by fumes.
California: Anhydrous ammonia remained at $395-$400/st DEL in the state.
Pacific Northwest: Delivered anhydrous ammonia remained at $335-$345/st in Montana, and roughly $345-$365/st in Washington and Idaho. Forward contract ammonia for December was reportedly being offered at $370/st FOB Washington terminals from one supplier, with aqua ammonia quoted at $96.50/st FOB in Washington for December.
Western Canada: Anhydrous ammonia pricing remained at $444-$479/mt DEL in the region.
Black Sea: Asian sources report the market is tight but stable. Observers note that demand from the United States has not moved in ways producers would like. As a result, they say, prices have not shifted. Sources still peg the price in the mid-$240s/mt FOB, with producers arguing there will soon be a move upward.
As the month opened there were strong indications that an upward movement in the market could have taken the price to $250/mt FOB, but as of late last week that effort appears to have stalled. Even though producers are talking up $248/mt FOB as the new price level, sources in Asia say the top price they can nail down is $245/mt FOB. On top of that, sources say the loading of older tons committed just below that level is still going on.
Asian sources are putting the market at $242-$245/mt FOB.
Reportedly, November is sold out and December is looking good. Still, observers note that the strong demand from the United States that usually comes at this time is missing. Until the Americans return in strength, said one Asian trader, there is little hope the price will move up.
Middle East: Sales are going well based on strong demand from India. Sources say the producers are sold out for November and most of December.
Producers have been talking about moving the price up, but are hard pressed to point to any business justifying the talk. Now, say sources, rumors are circulating that PIC/Kuwait sold a cargo to Mitsui at $260/mt FOB, which – if true – would represent a $15/mt jump in prices.
Obviously, producers are promoting this deal as an indication of things to come. At the same time, buyers and traders are wary of agreeing that this is a new benchmark. One trader commented the deal might have been a prompt spot. Reportedly, Mitsui had a charter vessel in the area and came up short of tons for a regular customer.
One trading house said the price is possible given the tight nature of the spot market in the area and Asia. With most of the Middle East tons committed to long-term contracts and with Indian buyers taking as many tons as can be shaken loose, sources say any other deal would carry a hefty premium.
Reportedly, the ammonia will be going to an Asian buyer. One source suggested a Korean company is the buyer, but could not say definitively if indeed that was the final destination.
Another observer noted that while arguments can be made for a sale to Asia, an equally strong argument could be made for India.
Adding fuel to the fire of a price increase, one trader noted that Nitrochem did a deal to IFFCO at $315/mt CFR. Taking $55/mt off for freight, that $260/mt FOB price looks about right.
Sources peg freight to India’s west coast from the Arab Gulf at $40/mt and up, and to the east coast at $55-$60/mt. These prices, said one source, do not take into account the discounts that chartered vessels have, so using the delivered price into India to nail down the actual FOB price is chancy at best.
Adding to the tightness in the region are reports that SAFCO 4 is still focusing on urea instead of ammonia production.
Indonesia: The KPI/Mitsubishi plant is slated to go down Nov. 18 for 7-10 days. The routine turnaround will be the second this year for the facility. Sources say the plant operators are not happy about the need for the turnaround. The shutdown will involve mostly routine inspections at this time. No tweaking of the system is scheduled at this time, unlike the March shutdown.
The company is hoping that all that is needed are slight adjustments so that the plant can get back up and running quickly. The proposed shutdown period will result in the loss of 10-15,000 mt of ammonia production.
Because of the March shutdown and strong regional demand, Mitsubishi has not been able to build strong reserves.
Asia: China continues to demand more and more ammonia. New facilities up and down the eastern and southern coast are looking for additional tons. Asian sources say the Chinese demand is largely driving the shortage of material in the region.
The need for ammonia in China is offsetting a current reduction in demand from Korea and Taiwan. Sources say the downstream demand in these two territories is off slightly from projected levels. One source said the reduction in demand is not major. He said buyers in both countries are still taking all the contracted tons they booked, but no one is looking for extra material at this time.
The Australian Burrup material is playing into the local market. It is supplying about 80,000 mt to the Philippines, which covers slightly less than half of that country’s needs. Another 80,000 mt usually comes from Indonesia – mostly Kaltim – and the rest has to come from spot purchases.
Burrup tons are also said to be finding their way into India, but demand in that country is so great that all it has done is hold off major price increases from India’s usual main supplying region, the Middle East.
UREA
U.S. Gulf: Price ideas spanned a broad range in the prompt urea granular barge market last week. Many said barges traded hands early in the week within the $225-$228/st FOB range. By the end of the week, others were claiming that barges had stair-stepped up to $235-$240/st FOB. Some players were very skeptical that the highest end of this range was achieved for prompt material, suggesting it might be more in line for forward and/or paper material.
One problem with the higher numbers, said sources, was that inland prices have not been keeping up with the strong NOLA market. However, it is trying, according to some, with the Inola/Catoosa market, reportedly moving from $255/st FOB to $260/st FOB last week, though this is not near enough to keep in line with the recent jumps at NOLA.
Eastern Cornbelt: Granular urea was quoted at $255-$265/st FOB, up slightly from last report, with list prices from one regional supplier reported in the $265-$275/st FOB range in early November. Agrium’s granular urea postings moved on Nov. 8 to $275/st rail-DEL in Ohio, Indiana, and Illinois, and $280/st rail-DEL in Michigan. Warehouse postings moved on that date to $270/st FOB Garrett, Ind., and $275/st FOB Saginaw, Mich.
Western Cornbelt: Granular urea was quoted at $250-$255/st FOB in the region, with the low out of spot Mississippi River locations. Agrium’s granular urea postings moved on Nov. 8 to $270/st rail-DEL in Minnesota, Wisconsin, and the Dakotas, with warehouse postings moving on that date to $265/st FOB Shakopee, Minn., and North Dakota locations at Alton, Carrington, Colfax, Marion, and Scranton.
California: Granular urea was unchanged at $310-$320/st FOB and $320-$330/st DEL in the state.
Pacific Northwest: The granular urea market continued to be quoted at $265-$275/st DEL in the Pacific Northwest region, and $255-$260/st DEL in Montana. Effective Nov. 8, Agrium’s Washington warehouse postings for granular urea moved to $275/st FOB Glade, Kennewick, Warden, and Wilson. Delivered postings moved on that date to $262-$267/st in Montana and Wyoming, depending on location; $280/st in Washington, Oregon, Idaho, and northern Nevada; $285/st in northern and central Utah; and $290/st in southern Utah.
Another regional supplier was offering forward contract urea for December at $270-$275/st DEL in Montana, $285/st DEL in Washington, Idaho, Oregon, and Utah, and $295/st DEL in Wyoming.
Western Canada: Granular urea pricing was pegged at $340-$360/mt DEL in the region, up from $325-$345/mt DEL at last report.
India: In a move that surprised the industry, MMTC came back to the market with a tender to close Nov. 14. The company issued the tender after last week’s edition of Green Markets went to press. In a move that has become familiar, MMTC did not say how many tons it was ready to buy. Sources say, however, the company is looking to take 300,000 mt by the end of the year.
The emphasis on the tender is for delivery to smaller ports. This, said one trader, means that panamax vessels will not be in play.
Sources say the major ports in India are backed up with vessels unloading grain and fertilizer. As a result, the conventional wisdom was that only the smaller ports could handle additional orders. One trader, however, said that even that move doesn’t work. He notes that IPL and MMTC are both holding off on many of their Middle East tons because the smaller ports are just as congested as the big ones.
The call for tons to be delivered December and early January to smaller ports indicated to some a desire to take Chinese urea. Product from China is bagged and can be shipped in smaller vessels more easily than tons from the Black Sea and even the Middle East. At the same time, importers looking to take Chinese urea must have the cargoes loaded and out of the ports by the end of December to avoid paying a higher export duty.
Still, some in the industry dismiss the idea that MMTC is gearing the tender to accommodate Chinese product.
One source said the Chinese producers are facing a problem of getting the tons from factory to port. Access to railcars has become problematic, said one trader. Moreover, without the railcars the urea can’t get from factory to port. Therefore, say sources, that ends the idea that Chinese material is the target of the MMTC tender.
Observers who are less than kind are wondering openly if there is some reason other than the need for urea to call a tender at this time. One source noted political and financial pressure to execute a tender could be in play. He noted that the need for product at this time is definitely not driving the call. The tons on their way to India now are more than enough for current needs, say sources. The cargoes still to be loaded and delivered next month and January are all buffer stocks for the next season. The reserves that are represented by those cargoes are more than enough to get the next season started and ensure plenty of urea into the season.
Supposedly, MMTC is looking for the same price they paid in their last tender. Industry observers say this will not happen. The Black Sea price has moved up as traders covered their shorts and other buyers stepped in on the heels of the last Indian business. The Middle East prices are poised to rise because their order books are full for the rest of the year. And Chinese sellers are not as anxious to sell – if they could get the product to the ports in a timely manner – as buyers might hope. All in all, if MMTC buys now, said one trader, they will have to pay significantly more.
Black Sea: Prices moved up. Buyers moved in early last week to nail down deals before short coverage and top-off buying moved things even higher.
Sources report Brazil bought tons at just under $220/mt FOB. By the end of the week, with shorts covered and large cargoes booked for India getting ready to be loaded, sources put the market at $221-$225/mt FOB.
Traders in Asia look at the movement with skepticism. One noted that much of the movement in material and pricing was traced back to a major trading house. The coverage of shorts and increased talks of higher prices would help that company recover potential losses if the price took a nosedive.
Adding to the upswing fever are reports that TCP/Pakistan will still go ahead with its tender for 100,000 mt. While that amount is not large, when compared to production potential in the area and when the Yuzhnyy tons are competing against other regional suppliers, sources say, the tender may be enough to keep the price from sliding.
Producers are booked into December. If MMTC scraps the tender it just called, the next time it will need tons will be February or March. By then, sources say, the Black Sea reserves will have built up to levels that could force another price drop as producers scramble to ease potential growing stockpiles.
Middle East: Despite the run-up in price in the Black Sea, sources say the Middle East remains stable. Granular and prills continue to sell at parity, and order books are full into next month.
One trader noted there is no opportunity for producers to raise prices, because they have no tons available. Any discussion of tons for this month or early next month is reportedly rhetorical. As a result, producers are asking top dollar for tons they don’t have to people who will refuse to pay that price.
Shipments from the area are mingling with cargoes from the Black Sea in the Indian ports. Sources say that some shipments are even being delayed, and that the orders that are booked for smaller ports are being held back. One trader noted that it makes no sense to load a vessel and rush it to India only to have it sit in the harbor while it waits its turn to unload.
China: The idea that Chinese material will work into India for the current MMTC tender is being dismissed by traders in the area. The current level of $226/mt FOB bagged does not work into India at this time, say observers.
To add to the doubts about Chinese product being put in play in the tender, another trader noted that the Chinese exporters have their own logistics problems to deal with. Just getting enough railcars to ship the product from factory to port is a major effort. Sources say the rail cars are being used to move imported goods inland. Getting the empty cars to the right factory in time for a vessel to load is often problematic.
There is still no word as to what Beijing plans to do about the export tax. For now, industry players are operating under the assumption that the export rate will go back up to 30 percent from the current 15 percent beginning the first of the year. That means that all orders must begin loading by the end of December to qualify for the lower tax rate.
Sources say the government is not expected to accept orders made in December but to be loaded in January as qualifying for the lower tax rate. In previous years the national customs office did accept that formulation. Sources said, however, that some exporters backdated deals to take advantage of the tax reduction. There was one report of tons being charged at the lower rate being loaded almost three months after the higher taxes were to have taken effect.
Indonesia: Apparently two of the three necessary ministers have approved the export of granular urea from Kaltim and PIM. The holdout, it seems, is the ministry of agriculture.
Sources say the Ministries of Finance and Industry have signed off on the export of about 500,000 mt of granular urea. The agriculture minister, however, is nervous – if the exports are allowed, Indonesian farmers may end up short as the application season approaches.
Apparently, the agriculture minister has not been fully briefed on the difference between granular and prilled urea, said one observer. Indonesian farmers have long preferred prills to granular. In the past, the farmers only took granular if it was offered at a heavy discount.
In the past couple of years, because of export bans and the inability to sell its granular product in the domestic market easily, Kaltim and PIM have reportedly blended granular with prills for the farmers. So far, there have been no complaints.
The desire to export is based largely on the desire to earn hard currency for feedstock, repairs, and improvement. Unfortunately for the companies, there is a glut of granular in the global market and granular no longer sells at a premium to prills. Still, said one observer, any hard currency income is better than none as long as the companies turn a profit.
NITROGEN SOLUTIONS
Eastern Cornbelt: UAN pricing was steady at $5.70-$6.07/unit FOB regional terminals, with the low out of spot river locations. Reference prices for UAN-28 ranged from $166-$175/st ($5.93-$6.25/unit) FOB in the region, depending on location.
Western Cornbelt: UAN remained at roughly $5.56-$5.94/unit FOB regional terminals, with the low out of spot Mississippi River locations and the upper end on the Missouri River.
California: UAN-32 pricing was unchanged at $205-$215/st ($6.41-$6.72/unit) FOB and $220-$225/st ($6.88-$7.03/unit) DEL in the state.
Pacific Northwest: UAN-32 remained at $203-$225/st ($6.34-$7.03/unit) DEL in the region, with the low for railed tons and the high for truck-delivered product.
Western Canada: UAN-28 pricing in the region moved on Nov. 8 to $216-$229/mt ($7.71-$8.18/unit) DEL, up from last month’s $207-$220/mt ($7.39-$7.86/unit) DEL.
AMMONIUM NITRATE
Western Cornbelt: Ammonium nitrate remained at $245-$250/st FOB in the region.
California: No market was reported for ammonium nitrate in the state. CAN-17 was quoted at a nominal $205-$210/st FOB in California.
Pacific Northwest: Ammonium nitrate remained at $275-$280/st rail-DEL in Idaho and Washington, and CAN-17 was unchanged as well at $215-$220/st DEL.
AMMONIUM SULFATE
Eastern Cornbelt: Granular ammonium sulfate was steady at $155-$160/st FOB in the region.
Western Cornbelt: Granular ammonium sulfate pricing remained at $155-$165/st FOB.
California: Ammonium sulfate was tagged at $165-$170/st FOB and $170-$180/st DEL in the state, with the lower end of the ranges for standard or coarse and the upper end for granular sulfate.
Pacific Northwest: Ammonium sulfate was quoted at $159-$170/st FOB and $164-$175/st DEL in the region. Agrium posted a fill program for granular ammonium sulfate, with orders required by Nov. 10 and shipped by Dec. 15. Program prices, effective Nov. 1 in Washington, Oregon, Idaho, Montana, Utah, Nevada, and northern Wyoming, included $159/st FOB the warehouse and $164/st rail- or truck-DEL direct from the plant. On Nov 11, those postings move to $170/st FOB and $175/st DEL.
Western Canada: Granular ammonium sulfate was quoted at $260-$270/mt DEL in the region.
PHOSPHATES
Central Florida: Sales across the board, including Central Florida, increased last week as the Midwest began to dry. The long-awaited fall season went into full swing as farmers got to work planting what looks to be a much larger corn crop than the previous year. The U.S.D.A. projected between 84 million and 86 million acres of corn would be planted, as opposed to the 77.5 million acres the last time. In addition, corn prices increased from less than $2/bushel a couple of months ago to about $3.75/bushel late last week. Ethanol was said to be a major factor in the increased corn planting, and one recent estimate was that as much as 100 million acres would be planted within the next few years.
While sales to most points in the Midwest went up sharply last week, the one area that did not was the Northeast, which is served by rail from Central Florida and where dairy farmers were still hurting from higher operating costs and lower milk prices, although the price of milk was improving.
In the Midwest, warehouses experienced a rush – and many ran empty. Dismal forecasts for the fall season were being modified by many in the industry, and most expected the spring season to be a bumper for profit levels. Some terminals were planning on filling bins in the fall in order to have product on hand for the beginning of spring, which was a sharp contrast from the previous strategy of letting supplies fall to zero.
Although Mosaic hiked its asking price for DAP and MAP on the river by $5/st last week, it held the line in Central Florida in an effort to restore the normal price differential between the river and Florida, which has traditionally been between $10/st and $15/st FOB. It should be noted that while Mosaic intends to get the $5/st FOB bump on the river, that had not actually materialized as of last week.
DAP prices in Central Florida remained in the range of $218-$219/st FOB, but discounts vanished. As a result, traders for the area were planning to charge as much as $221/st FOB. Mosaic discounts MAP $4/st from the price of DAP, while CF has no price difference. PotashCorp’s Central Florida reference price was still at $245/st FOB. In Texas, Agrifos’ truck prices for DAP or MAP were $245/st FOB for either. That company also matches the rail prices of other producers.
U.S. Gulf: Early in the week NOLA DAP barge prices were mostly in the $216-$218/st FOB range, but after Tuesday, prices climbed up to the $218-$220/st FOB range for most sales. Warehouses along the Illinois River experienced heavy runs, and many of those terminals ran dry – even those owned by large operators and producers. What few barges were already on the water on the Illinois were quickly snapped up, and business out of New Orleans was quick to follow. Buyers were no longer haggling over price, but were more concerned about how fast the deliveries could be made. By this week, cheap barges will only be a fond memory, so expect to pay more.
Other areas that saw a significant increase in sales last week included Iowa, Nebraska, Ohio, and the Dakotas.
The sudden change of fortunes put a smile on the faces of almost everyone in the industry. Most thought the fall season would turn out much better than it appeared, and many believed the spring season holds great promise. Buyers were no longer afraid of having phosphate left in their bins at the end of the current season, because the rush to fill in the spring could leave them short of product. No one was projecting phosphate prices will go down. With Mosaic’s Faustina plant still out of operation and demand high, Mosaic was pushing to get the price of DAP up to something closer to the normal differential of the Gulf to the Central Florida price, somewhere between $10-$15/st FOB. Obviously, that will not happen all at once, but over an extended period. The Florida price will remain unchanged, but the price on the river will increase. At least, that’s the plan.
Sales on the river last week ran from as low as $215/st FOB to $221.50/st FOB, which established the range for NOLA DAP barges. It was very unlikely the lower end of the range will be available this week.
Eastern Cornbelt: DAP was unchanged at $253-$265/st FOB regional warehouses, with the low out of spot Ohio River locations. MAP was commonly quoted at $255-$265/st FOB and TSP at $235-$245/st FOB in the region, with the low on the river system and the upper numbers inland. 10-34-0 pricing remained at $255-$265/st FOB.
Western Cornbelt: DAP and MAP were unchanged at $255-$265/st FOB, and TSP pricing remained at $235-$245/st FOB in the region, with the low on the Mississippi River. 10-34-0 was quoted at $255-$260/st FOB in Nebraska and $260-$265/st FOB in Iowa.
California: MAP pricing remained at $315-$320/st FOB warehouse or DEL to the dealer, with the low for rail and the high for truck-DEL product. DAP was $5/st higher than MAP. 10-34-0 was up slightly to $252-$257/st FOB, and 16-20-0 was $235-$240/st FOB in the state.
Ortho-phosphoric acid was quoted at a solid $5.50/unit rail-DEL or FOB warehouse, with super-phosphoric acid at $5.50-$5.60/unit DEL or FOB in the state.
Pacific Northwest: DAP was unchanged at $312-$317/st DEL, with MAP quoted at $305-$310/st DEL. Montana prices were roughly $5/st less for both products. 16-20-0 remained at $235-$245/st DEL, and 10-34-0 was $240-$245/st FOB and $250-$260/st DEL in the region.
Delivered phosphoric acid pricing remained at $5.50-$5.60/unit for super and $5.50/unit DEL for merchant grade.
Western Canada: MAP was up slightly as of Nov. 8 to $385-$420/mt DEL in the region, a $5/mt increase from last report.
U.S. Export: With PhosChem’s sales to India and Pakistan last week, export DAP prices moved up a little. The sale to Pakistan was for 40,000 mt at $257/mt FOB, while the India deal was for 47,000 mt at $253/st FOB. Normally at this time of the year Australia is a big customer of North American phosphate, but a severe drought there has kept product in warehouse bins and off the dry fields. The Chinese co-op was still taking the phosphate it agreed to accept under its contract with PhosChem, but has held off on making spot buys.
The sales into India and Pakistan last week set the export DAP price range at $253-$257/mt FOB, compared to $250-$255/mt FOB the previous week.
India: Under its ongoing tender for 250,000 mt of phosphate rock (72-75 BPL), RCF has awarded the tendered quantity to JPMC ex Jordan at US$68.00/mt FOB for shipment November, 2006 through December, 2007.
POTASH
Eastern Cornbelt: Potash continued to be quoted at $197-$202/st FOB regional warehouses, depending on grade and location, with warehouse reference prices reported in the $204-$207/st FOB range in early November.
Western Cornbelt: Potash remained at $195-$200/st FOB regional warehouses. Reference levels were at $204-$210/st FOB, depending on location and supplier.
California: Potash was unchanged at $227-$233/st FOB, and potassium nitrate pricing remained at $485/st FOB for bulk and $540/st FOB for 50-pound bags. Sulfate of potash (SOP) was steady at $343-$348/st FOB for granular and $331-$336/st FOB on standard/soluble.
Pacific Northwest: Potash remained at $210-$230/st DEL, depending on grade and location. October postings ranged from $230-$242/st DEL in the region, with warehouse postings for coarse potash at $230-$237/st, depending on location.
Western Canada: Coarse potash remained at $242-$257/mt FOB, with the low at plant sites and the higher end out of regional warehouses. Granular potash remained at $245/mt FOB the mine.
SULFUR
U.S.: Last week sulfur marketers were struggling to find homes for the abundant supply of product they expect to have next year, and much of it was still homeless. One source said, “Canada is like a deer in the headlights, trying to figure out which way to go.” Those options include exporting more through Vancouver, exporting more to the U.S., blocking, and cease remelting, which hardly seems necessary. Some sulfur sellers came into the market during the past couple of years, when sulfur was actually profitable, and appeared to be having a difficult time of adjusting to the new reality. That will change. On the Gulf Coast, more sulfur will be used in the prillers for, hopefully, export, and some will likely be blocked next year. Watch for another price decrease for the first quarter of 2007, say many sources.
India: RCF has issued a tender for 9000 mt for arrival MBPT/ Dharamtar during December. The tender closes November 15. FACT has issued a tender for three lots of 15,000 mt for arrival Cochin during December 25-28, January 9-12, and February 1-4. The tender closed November 6, with bids to remain valid through November 13.
Disclaimer of Warranty
All information has been obtained by Green Markets from sources believed to be reliable. However, because of the possibility of human or mechanical error by our sources, Green Markets or others, Green Markets does not guarantee the accuracy, adequacy, or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information.
