Indian urea tender: Set to fail

India’s urea tender is heading for a poor result. Suppliers offered 5.35mn tonnes, but almost none of it may be booked at the price IPL has set.

IPL set its price lines at the L1 offers: $352.10/t CFR for the east coast and $356.25/t CFR for the west. It issued counters to suppliers from L2 to L6 on both coasts, open for acceptance until Saturday. No one accepted. IPL has now extended counters to all suppliers, with a deadline of 3pm on 13 October.

The problem is that the L1 prices were well below the rest of the field. On the east coast, Millenium’s $352.10/t and Aditya Birla’s $353/t were $11/t under Valency, the next lowest offer, at $364/t. On the west coast, Aditya Birla’s $356.25/t was almost $10/t below Valency’s $366/t. Most offers fell between $364 and $380/t CFR.

China is the main reason sellers would not match. Chinese urea would net back about $320/t FOB at these prices, and producers have refused to sell at that level. China has about 1.3mn tonnes of prilled urea available for export and is not in a hurry to sell. Most traders were counting on Chinese supply, so they cannot match the counters without taking a loss.

That leaves only the L1 offers firm: Millenium’s 60,000 tonnes on the east coast, and Aditya Birla’s 350,000 tonnes on the west plus up to 350,000 tonnes on the east. Even those offers are now at risk. The L1 sellers must find cargoes at prices the market has rejected, and if Chinese costs stay high they could lose $15–20/t.

If acceptances stay thin by Tuesday’s deadline, India will probably have to re-tender. Sellers are likely to price in this risk, and the next tender could come in closer to $365–375/t CFR.