Brazil is taking the opportunity to buy cheaper fertilizers from Russia, just as European and American sanctions have hit the Bloc’s exports.
The world’s fourth-largest food producer has not imposed any sanctions on Russian products and only needs to overcome logistical challenges to secure the supply of cheaper fertilizer.
Although Russia was shunned by much of the Western world after its invasion of Ukraine, it exports similar volumes of nitrogen and compound fertilizers to pre-war levels. However, sales to Europe have all but ceased due to the sanctions, but sales to Brazil, India and Africa have continued. Meanwhile, the United States still imports a small volume of products as well.
Buyers of Russian products face shipping problems because some freight companies cannot transport Russian materials, while other companies have self-sanctioned away from the Russian market. This pushed the cost of shipping from Russia to Brazil to nearly $100/t (£86/t), double last year’s price.
Brazilian buyers are currently paying between $640/t and $660/t CFR (£490/t to £544/t) for urea, which is €120/t (£104) less than Europe. Russian urea is generally at the lower end of the range, with a price around $20-30/t (£17-£26) lower than other origins.
Jennifer Willis-Jones, Nitrogen Markets Editor at CRU – a global commodity market analytics company – said: “One thing to make clear is that there is no shortage of supply of products in the world. Major fertilizer-producing countries are producing similar amounts to last year.
“But the volatility in the urea market is here to stay in the short to medium term. The supply chain has been disrupted due to the reaction of different nations to the war in Ukraine and as a result prices have increased in the open market.”
Closer to home, in the UK and Europe, the picture is a little more mixed with the closure of the Cheshire CF Ince factory as well as a stop-start approach to manufacturing on the continent. More and more nitrate and ammonia plants have temporarily closed where gas price increases have reduced profitability too much, forcing companies to mothball.
After historically high fertilizer prices in February and March, prices cooled in mid-May before recovering for at least two weeks. Ms Willis-Jones added: ‘The market reacted to psychological concerns rather than a huge supply and demand disruption.
“In May, there was less global trade than expected as people waited for the market to cool down before committing. The biggest event in the market was RCF’s purchase of India’s 1.645 million tonnes of urea on May 11, largely from the Middle East.
“Buyers were reluctant to enter a market after the spring volatility, so the pace of trading slowed. Many buyers were hedged in the immediate term, so they were waiting to see what would happen.
Due to reduced market activity, prices fell after India’s purchase of RCF to $716.50/t CFR for the West Coast of India and $721.30/t CFR for the east coast of India. But when the price of gas shot up again on June 17, big fertilizer buyers around the world felt the market wasn’t going to go down any further, so they jumped back in and bought the supply. This resulted in firmer prices through June.
By the end of June, traders were obtaining produce from Egypt and Algeria to sell in Europe. Manufacturers in these countries have access to cheap gas and are therefore likely to make significant profits at current prices.
As we head into July, the global market now resembles the situation in early May before the price slowdown. Demand will increase this month as India launches another tender and Brazil is expected to return to the market to buy more in July and August.
Despite a healthy supply of Russian fertilizer, the country is still a month behind the orders it usually holds. Due to not imposing sanctions, Brazil has the ability to take products from Venezuela and Iran as well as Russia. However, some buyers in Brazil will not sell sanctioned products because they are exposed to the US or European market where restrictions apply.
In September, the United States and Europe will return to the market to buy again. This means that the global fertilizer market is likely to be buoyant until the end of the year. A strong natural gas price and strong grain fundamentals should keep the price floor strong.
Looking around the world to China, one of the largest urea exporters has implemented an export license system in an attempt to slow down exports. When prices rose in late 2020, the product was being sucked out of China, lured by rising international prices.
But government officials feared this would leave domestic supplies short, so they imposed licenses to restrict exports. As a result, a reduced volume was exported from China and this is unlikely to change for the rest of the year.
The two major Nigerian manufacturers, Indorama and Dangote, continue to produce large volumes of urea. The new entrant, Dangote, currently exports around 100,000 t/month of urea but plans to double its exports from September, which should end in West Africa, the United States and Latin America.
Brunei Fertilizer Industries has also increased production, which is expected to head to Southeast Asia, Latin America and Australia.