Fertiliser prices fall as traders look past Middle East disruption

Nitrogen fertiliser prices have fallen sharply from wartime highs as traders increasingly price in the unwinding of Middle East supply disruptions, even as demand weakness and logistical bottlenecks continue to cloud the outlook.

Benchmark Middle East urea prices have dropped about 50% to $475 a tonne from an April peak of $918 a tonne, according to Argus data, returning to prewar levels despite ongoing disruption to shipments through the Strait of Hormuz, Caliber.Az reports via foreign media.

Market participants said the decline began before expectations of a US–Iran peace deal improved sentiment around Gulf exports, with traders also reacting to weaker seasonal demand and the prospect of renewed Chinese supply.

Urea markets “rose the fastest and sharpest following the closure of the Strait of Hormuz and has fallen the fastest and steepest even before the strait has reopened”, said Sarah Marlow, head of fertiliser pricing at Argus.

Demand-side weakness has also weighed heavily on prices. Máximo Torero, chief economist at the UN’s Food and Agriculture Organization, said “lower demand is not good news”.

He added that reduced purchasing during periods of high prices could affect output. This “could mean lower yields”.

Some analysts say farmers have already responded by curbing application rates or adjusting planting decisions in response to elevated costs.

“One of our working theories is that global farmers finally pushed back and said ‘the price is too high: I am going to cut back on my nitrous application’,” said Josh Linville, vice-president of fertilisers at broker StoneX.

He added: “but when you think about that on a global scale, that is a massive amount of tonnage and I think that helped rebalance the supply and demand”.

Alzbeta Klein, head of the International Fertilizer Association, said production decisions taken during the price spike will still affect harvest outcomes.

“People made decisions to plant certain things as opposed to other things, so the impact on yield will be visible in three to four months,” she said. “The fact that today urea is lower than it was before the war makes no difference to the harvest we’re going to have.”

Some analysts argue the timing of the disruption limited demand destruction effects, as much of the northern hemisphere had already secured supplies before trade flows were interrupted.

“As prices shot up immediately after the conflict, [fertilisers were] faced with a lack of demand, fundamentally,” said Willis Thomas, head of fertilisers at CRU. “Most of the northern hemisphere had their in-warehouse fertiliser, and the southern hemisphere hadn’t begun to buy for their seasons.”

Traders also pointed to improving expectations for supply as China signalled a return of exports from June 1, easing concerns over global availability.

“The market saw that and they knew that was coming, and they started to say, ‘OK, the worst part of this is over’,” Linville said.

Despite the price correction, physical markets remain tight, with significant volumes still delayed in transit.

“It will take time for producers to rebuild stocks and return to prewar operating rates,” said Marlow.

CRU estimates nearly 900,000 tonnes of urea remain in floating storage in the Gulf, much of it already sold but not yet delivered.

“As prices fall, buyers will wait for the bottom to be reached before returning to the market,” Marlow said.

While urea has retreated, phosphate fertiliser markets remain constrained by a separate supply shock linked to sulphur availability.

“It is sulphur that remains critical in terms of both availability and price,” said Marlow.

Argus data show sulphur prices have more than doubled since the start of the conflict, rising 110% in China and 133% in Mediterranean markets.

By Aghakazim Guliyev