An interim US-Iran deal to end their months-long war and potentially fully reopen the Strait of Hormuz is unlikely to immediately ease fertilizer flows as shipowners wait for more details to assess the safety of transits.
A vital conduit for global commodity trade, Hormuz has been effectively closed since the first strikes on Iran at the end of February. Even once there is more clarity on the resumption of trade through the waterway, market watchers expect movement of the crop nutrients to be gradual as hundreds of vessels stranded in the region — carrying a variety of cargo — compete for access.
The Gulf region is home to some of the world’s largest fertilizer plants, and the waterway handled about one-third of the global trade in urea — one of the world’s most important crop nutrients. The months of disruption have left large volumes of urea and other fertilizer products trapped behind the strait, sitting aboard vessels unable or unwilling to transit the waterway.
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There are over 40 vessels laden with fertilizer in the strait, according to tanker-tracking data compiled by Bloomberg and Kpler. A trickle of ships have made it out since the conflict began, but weekly exports are down 90% from pre-conflict levels, Kpler data show, with flows falling from nearly 600,000 tons a week in late February to 60,000 tons in early June.
Also, fertilizer cargoes are unlikely to be among the first shipments to move. Hormuz is crucial for global energy flows and analysts expect oil and LNG tankers to receive priority.
“When it comes to moving ships through the Strait of Hormuz, it’s going to be oil tankers and LNG carriers that are top of the list once we get towards a more normal flow of traffic,” said Alexis Ellender, senior dry bulk lead at Kpler. “Fertilizer is not as high a priority.”
Still, the continued delays come as much of the Iran war premium has evaporated from the fertilizer market. Prices of urea have plunged more than 30% since mid-April after China eased export restrictions and the planting season in much of the Northern Hemisphere has wound down.
However, prices in the US are still 10% higher than a year earlier.
The ships stranded in the Gulf region are carrying around 1 million tons of nitrogen fertilizer, according to senior CRU analyst Pranshi Goyal. Roughly 40% of that is already committed to India, but the remainder could return to the market once transit resumes, potentially further weighing on prices.
Photograph: The Yeoman Bridge, a self discharging bulk carrier, loads cargo at the potash berth in Teesside, UK; photo credit: Ian Forsyth/Getty Images
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