Urea prices are notorious for being highly volatile and, in recent months, they have lived up to their reputation. In early May, RaboResearch commodities and farm-inputs analyst Paul Joules said, granular bulk urea (Middle East) prices reached their highest level since December 2022 in Australian dollar terms – AUD 680/tonne. However, he said, since then, prices have partially corrected, having retracted nearly 20% from those levels.

“Global supply tightness has been a factor within urea markets for many months,” Mr Joules said. “However, finally, some good news on the supply front emerged in late May – China returned to the urea export market after a one-and-a-half-year absence. Typically, the country is a sizeable exporter. However, in order to protect its farmers from rising international prices, China effectively stopped exporting urea.”

The Rabobank analyst said although it’s expected there will be limits on how much Chinese urea can be exported, this return will certainly help to ease the tight supply situation, and likely contributed to the sharp drop in prices in recent weeks.

“The timing of China’s return to the market is convenient for supply and demand, as the world’s largest urea importer, India, is actively seeking to secure volumes from the market. India’s latest tender, which is to be delivered by July 31, will likely be around 1.5 million metric tonnes,” Mr Joules said. “Import activity in India could potentially stay strong given internal stock levels are relatively weak, which may well continue to support global demand and keep supplies tight, even despite the imminent arrival of Chinese urea supplies.”

Mr Joules said despite the return of Chinese urea exports, market attention has shifted to a significant supply risk – the Middle East risk premium is returning to energy markets, and this could filter through to fertiliser prices. Israel’s recent attack on Iran (a major urea exporter) has the potential to cause a significant supply shock. “For urea, the Middle East region is key for world production and exports. There are already reports that Egypt (another key urea exporter) has had to stop fertiliser production as its gas supplies, which it receives from Israel, are being impacted by the ongoing conflict. There are also some reports emerging that Iranian energy infrastructure may have been damaged, which could have consequences for Iran’s urea production,” he said.

According to Mr Joules the biggest potential risk to note would be the Strait of Hormuz closing. “Qatar, Oman and the UAE export about 18% of the world’s liquid natural gas (LNG) – a key feedstock in urea production – supplies, most of which pass through the Strait of Hormuz. Although, for now, RaboResearch views the risk of a full closure as fairly low, it’s still important to highlight that in this worst-case scenario, the immediate loss of gas supplies would have the potential to push prices for all gas markets to very high levels. The knock-on effect here is much higher urea prices,” he said.

Mr Joules said the other key factor influencing prices here in Australia – not just for urea but for all fertilisers – is Australian dollar volatility. “Over the past month, the AUD/USD currency exchange rate has risen by around 1.2% to reach USD 0.65. RaboResearch anticipates the cross to trade at around current levels on a 12-month view. Although these levels are a notable increase from those witnessed earlier in the year, they’re still well below the five-year average (USD 0.69). Because of this, Australian fertiliser prices are facing both currency headwinds and global supply uncertainties,” he said.

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 Rabobank Australia & New Zealand Group is a part of the international Rabobank Group, the world’s leading specialist in food and agribusiness banking. Rabobank has more than 125 years’ experience providing customised banking and finance solutions to businesses involved in all aspects of food and agribusiness. Rabobank is structured as a cooperative and operates in 38 countries, servicing the needs of more than nine million clients worldwide through a network of more than 1000 offices and branches. Rabobank Australia & New Zealand Group is one of Australasia’s leading agricultural lenders and a significant provider of business and corporate banking and financial services to the region’s food and agribusiness sector. The bank has 87 branches throughout Australia and New Zealand.