India walks away with 760,000 tonnes of urea, and dares China to blink

India has called China's bluff on urea, and for now it is India that looks comfortable.

At 3pm on 13 October, Indian Potash Limited (IPL) let its counter-offers lapse without renewing them. It walked away with about 760,000 tonnes, less than half of the 1.7mn tonnes it set out to buy, and showed no sign of regret.

It was not for lack of sellers. Suppliers offered 5.35mn tonnes, more than three times what India wanted. But IPL drew its price lines at the very bottom of the field and refused to move.

A floor nobody would stand on

IPL set its prices at the lowest (L1) offers. On the east coast, that was Millenium's $352.10/t CFR, about $11/t below the next offer, Valency's $364/t. On the west coast, it was Aditya Birla's $356.25/t CFR, almost $10/t below Valency's $366/t. Most of the field sat between $364/t and $380/t CFR. IPL first sent counters to the L2 to L6 suppliers. No one accepted. It then opened the counters to every supplier until 13 October. Still no takers. There was no further extension.

What India actually got

Only the L1 offers stand. On the east coast, Aditya Birla has 350,000 tonnes and Millenium 60,000 tonnes. On the west coast, Aditya Birla has 350,000 tonnes. That makes about 760,000 tonnes in all.

The west coast is hit hardest: 350,000 tonnes booked against the 1mn tonnes sought. Letters of intent have not been issued yet; IPL is waiting for port allocations from the Department of Fertilizers.

The $20 that split the market

This tender came down to India against China, and the gap between them was about $20/t.

At IPL's prices, Chinese urea nets back only about $320/t FOB. China is holding around 1.3mn tonnes of prilled urea for export, and its producers would not sell at that level. Most traders had planned to supply from China, so they could not match IPL's counters without losing money.

The few who did commit are now paying for it. Aditya Birla is reported to be covering Chinese cargoes at $340–350/t FOB, $20–30/t above what IPL's price allows.

Why New Delhi is not worried

Officials say there is no reason to pay more, and no need for panic. India is the only large buyer of prilled urea in the world, which leaves Chinese sellers few other places to go. Domestic stocks are comfortable, and Indian plants produce about 4mn tonnes a month.

Who blinks next

India still needs about 940,000 tonnes, so another tender is likely. Sellers burned this time will add a margin for the risk of being held to rock-bottom prices, and offers could come in nearer $365–375/t CFR.

China won't cut. India won't raise. The next round will show who gives way first.