Brazil's historically high inventories and weak demand are set to maintain nitrogen and potash purchases slow in early 2023, while negotiations for soybeans 2023-24 move phosphates market.
Join Camila Dias, Argus Brazil Country Manager, and Gisele Augusto, reporter for Argus Brazil Grains and Fertilizers publication, as they talk about the tendency for the macro nutrients activity, both imports and at the domestic market for early 2023.
Transcript
CD: Hello and welcome to ‘Market Talks’- a series of podcasts presented by Argus addressing the events impacting commodities and the energy sector in Brazil and around the world. My name is Camila Dias, Argus Brazil Country Manager. In today's episode, I talk to Gisele Augusto, reporter for the Argus Brazil Grains and Fertilizer publication, about Brazilian fertilizer market highlights in 2022 and the forecast for 2023. Welcome, Gisele
GA: Hi, Camila. It is a pleasure to be here.
CD: Gisele, 2022 was an eventful year for the fertilizer market, what are the expectations for early 2023?
GA: There are mixed trends in the macro nutrients market, Camila. Higher fertilizer carryover stocks and low demand are set to keep pressuring down nitrogen and potash-based fertilizers prices. A major part of the volume needed for these two nutrients to plant 2022-23 crops was bought in the recent months or are already in inland stocks. For phosphates, the reminiscent amount to be traded and the decrease in barter rates, especially for soybean, are expected to maintain the increase in prices through the first quarter 2023.
CD: You mentioned lower barter rates fundamental to keep phosphate prices high. How will this move affect the market?
GA: First, we need to remember that barter transactions are Brazil’s major way to finance agricultural crops, consisting of exchanging one metric ton (t) of inputs — as seeds, fertilizer, or pesticides — that will be used to grow a determined crop for a portion of the production. Higher grain prices and decreasing fertilizer costs in the past two months pressured the ratio down to the lowest level since September 2021, almost 27 bags per ton below the same period last year in Mato Grosso. This is motivating farmers to conclude new deals for the 2023-24 soybean crop after purchases were slow up to October. And the return of the demand is driving suppliers to increase their offers to the market.
CD: How are high phosphate prices affecting Brazil’s domestic market? Farmers are increasing deals in the domestic market, as they are concerned about new prices hikes. Farmers are targeting phosphate-based fertilizer deals for the 2023-24 soybean crop, which will be planted in next September. MAP prices are now at $720/t fob Rondonopolis, after reaching more than $1,500/t in late March. Meanwhile, price for SSP (18-23pc) in early December were 41pc below the same period a year earlier, but there are indications of higher prices for deliveries in the second quarter of 2023. Market participants affirm that there are a lot of inquiries for delivery in April-May 2023 in Rondonopolis, mostly for 23pc concentration, while in Paranagua, the concentration offered to the market is 18.5pc.
CD: And what is expected for urea in early 2023?
GA: Prices are set to continue their downward trend in the first quarter as demand for the 2022-23 winter crops drops. Some stability can come if India issues a new urea purchase tender in January. Market participants estimates that the Asian country’s demand is about 700,000-800,000t for January. In the Brazilian imports market, 2022 was marked by the competition between different origins for granular urea, with sanctioned sources pressuring down prices and stimulating some demand in mid-December. Urea reached a record high in part of the year, with natural gas and raw materials prices leading to shutdowns in nitrogen-based European units. This scenario can continue to add volatility in the market, but, in general, the tendency is for stability. In the Brazilian domestic market, last minute purchases are expected in early 2023 but overall, low demand and a consequent surplus of urea in Brazil’s warehouses in the fourth quarter of 2022 will maintain the drops in prices, with only small corrections expected.
CD: Russia and China have recently put quotas and duties over their exports. How will these measures affect Brazil?
GA: Market participants don’t expect the measures to affect the Brazilian market in 2023, as they don’t believe in a tight supply globally for fertilizers. In December, Russia published a decree confirming a duty of 23.5pc to be applied over the difference between $450/t and the value of the exports. These duties will be applied nitrogen, phosphate and potash fertilizers. Furthermore, Russia also extended the fertilizer quotas in place since July until 31 May 2023. Total quotas will sum up to 11.8mn t, including urea, nitrate, MAP, NPK and NPs. As for China, export quotas are expected to be put in place for phosphate-based fertilizers.
CD: Still in the nitrogen-based spectrum, what is your overview for ammonium sulphate in early 2023?
GA: From January to November, Brazil imported 33pc more AS than a year earlier, amounting 4.3mn t. China represented 90pc of those deliveries. Another source of both granular and standard AS to Brazil is Europe, but shutdowns and raw material prices made offers to the Brazilian market vanish. The higher availability of AS in the market and more attractive prices, considering the value of the nitrogen point in urea versus the sulphate’s, led to an increase in Brazilian imports. In the domestic market, farmers substituted granular urea for AS, especially in NPK blends, in an attempt to save money. In Brazilian ports, AS prices stabilized in the last two three weeks, with only marginal variations, as the downward trend in urea and the purchase window for application in the winter corn crop is almost done. Importers are now looking for cargoes from China for February and March, especially to be applied in fruits and vegetables, while some unsold volumes en route to Brazil may cover some demand for the corn sowing in Mato Grosso.
CD: Great, Gisele. The market was concerned about potash availability this year. What were the consequences of these worries to the Brazilian market?
GA: Earlier in 2022, Brazil was receiving a high volume of potash bought in the last semester of 2021 from Belarus. In late February, when the conflict between Russia and Ukraine started, Brazilian importers were concerned over the fertilizer’s availability, as Russia is a main supplier to Brazil. In the period, Belarus declared force majeure over its global deliveries and halted shipments. Therefore, Brazilian importers had to rush to guarantee volumes for the 2022-23 crops, despite the high prices. Potash price reached $1,188/t cfr, the highest level recorded by Argus.
CD: Did potash purchases increase on the year after this rush from Brazilian importers?
GA: In the first semester 2022, Brazil importer 8.4mn t of MOP, more than 2mn above the same period in 2021. Once farmers realized that they would have enough product for their crops, sales in the domestic market vanished and inland stocks started to grow. To attract demand, sellers started to reduce prices in cfr basis and in the domestic market. Many reduced their margins to clear storage space for other fertilizers. The trend extended through the second half of the year, with only occasional deals reported. The expectation is that the slow pace will prevail in early 2023, as farmers wait for lower prices and the decrease in barter rates. Market participants estimate that Brazil has a carryover of 2.9mn t only for potash. According to the Global Trade Tracker data, Brazil usually imports an average of 2mn t in the first quarter of the year. This means that the country should have more inland potash than it usually consumes in the quarter, which will also maintain prices pressured.
CD: What is the market’s overall expectation for deliveries in 2023?
GA: For carryover stocks, the estimates are at around 11mn t of macro nutrients, which will drive the slow start in 2023 for imports. For this year, market participants expect that Brazil increase deliveries to around 43mn t, but that will depend on how the crops will develop in the next months.
CD: Thanks a lot, Gisele.
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