By: Josh Linville, Vice President- Fertilizer
When I started on the July newsletter before the 4th of July weekend, I struggled with what I would write here. There were a couple very strong bearish factors as well as a couple very strong bullish factors. It seemed like I would write less about what I thought would happen and more about what happens if either side "won".
Yesterday/today's European natural gas values helped clear the air (thought we need to be aware that this can also correct).
With the runup on European nat gas values, producers there are looking at an estimated cost of urea production around $1,000 USD. Obviously the current world market is not going to support that. We have only seen/heard of one plant doing a short term outage as a response. Others are rumored to be considering and that is the fear. If more plants follow suit, we will see not only European supplies drop but world supplies drop while demand rises.
This story is not fully told but it is certainly leaning higher.
Global values might be turning the corner higher...and NOLA is a steep discount to global values
Today, the North American market is struggling with the inventory carryover from spring that it did not expect. We went into the spring expecting ending inventories to be near zero. Ahead of schedule imports and poor spring demand coupled to surprise the market. While we have seen exports occurring which is helping to clean up the excess, more needs to be done before the market is "comfortable".
The problem is what happens after the market gets "comfortable". Today, NOLA sits at a $60 discount to where Arab Gulf replacement values sit normally. If the global market holds (possible with Europe) and we "fix" our length, we could see that gap narrow with NOLA doing the upward correction.
Again, as mentioned above, there are still plenty of bull and bear factors to watch but today, the market seems to be leaning higher.
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