Rabobank’s Paul Joules speaks at the 2025 Australian Summer Grains Conference.

EASING tensions in the Middle East in recent weeks could see urea prices soften, though they are likely to hold within the “new normal” range, according to Rabobank commodities analyst Paul Joules.

Mr Joules gave an update on key price drivers for urea, phosphate and potash at the Australian Summer Grains Conference held at the Gold Coast last week.

The spike in urea prices in recent weeks was driven largely by the recent armed conflict between Israel and Iran, which kicked off with attacks on key Iranian facilities on June 13.

Mr Joules said this conflict led to “really big volatility on the urea markets” and caused Australian prices to jump about $100 per tonne.

He said this was because the Middle East and neighbouring Egypt were major exporters of inputs including 45 percent of the world’s urea exportable surplus, about half of the world’s oil production, and 10pc of the global natural gas supply.

“It’s a major area for a lot of the world’s inputs,” Mr Joules said.

“If you have big supply issues here, you will see extremely high prices.”

He said this was heightened with talks that the Iranian government could close the Strait of Hormuz.

“[The Strait of Hormuz] is effectively an energy global choke point.

“If there is any blockade or any closure, certainly prices will go astronomically high.”

Following intervention from the US, a ceasefire agreement between Israel and Iran came into effect on June 24.

Mr Joules said this de-escalation ensured the world “avoided that worst-case scenario of a big, big supply shock in that key part of the world”.

He said Rabobank expected the ceasefire would hold, and follow through to an easing in global, then Australian, urea prices.

“Urea prices could potentially track down a little bit, assuming the ceasefire holds.”

Perceived risk

Mr Joules said the jump in Australian urea prices was a result of a “perceived” risk to supply rather than an actual shortfall.

He said this was driven by news reports and speculation around the potential further conflict escalations and a possible Strait of Hormuz closure.

“Just because of the perceived fear of that loss of supply, we saw Australian prices move higher.”

In reality, vessel traffic through the strait held steady at around 100 ships a day, in line with the 10-year average, with numbers dipping only slightly to 97 or 98 at the height of the conflict, Mr Joules said.

He said a lot of these vessels were carrying fertiliser, oil, and natural gas.

Mr Joules said there was a short hiatus in production from key exporters Egypt and Iran during the height of the conflict due to a cut in natural gas supplies but that “as far as we’re aware…we are starting to see those plants come back on-line”.

India, China impacts

Outside the Middle East conflict, analysts were watching the actions of key fertiliser importer India, as well as the possible return of major urea producer, China, to the export market.

Mr Joules said China used to be a top-five urea exporter before a change in domestic policy caused this number to effectively “fall off a cliff”.

He said this was “one of the reasons that we have seen urea prices trend higher for the past year and a half”.

“The good news on this front is that they recently announced that they do plan to begin exporting again.

“It probably won’t be in the same sort of volumes that we saw in ’21 and ’23 for example, but it will be fairly significant.

“It’s fairly supportive of the fact that we should still see an easing of prices going forward as we see these supplies coming back online.”

On the demand side, Mr Joules noted that fertiliser purchases by major importer India had been subdued, largely due to elevated global prices.

“[India’s] stock levels of urea, phosphate and potash are a lot lower than they typically would be.

“But, if you look at the farm level…that demand is holding up fairly well and, with that, we are about to see Indian demand really spike back up.”

He said this expected rise in demand would “cap any major downside” to fertiliser prices “particularly on the urea front”.

Volatility remains

Mr Joules said the cost of inputs like phosphate and urea would continue to be elevated compared with longer-term indicators.

He said urea prices were “in-line with the five-year average” but that this was “a terrible indicator” due to the global instability seen during this period which was “some of the most volatile times that we have seen in terms of the commodity markets”.

“A fair assessment would be to mark before the Russian-Ukraine war kicked off, and in Aussie-dollar terms, we are about 40pc higher…today in terms of urea prices.

“It’s almost as if we have adjusted to a new normal in terms of fertiliser prices, particularly on the urea and phosphate front.

“It also has a little bit to do with the fact, if you look at the prices for natural gas, that’s been elevated as well, and the cost of production is high.

“It really seems like we are not seeing any major downside at least in the short term for a lot of these key fertilisers.”

Potash positive

Mr Joules said potash was diverging from the trend seen in phosphate and urea, with good supply coming out of the world’s biggest producers Russia, Belarus, and Canada.

“A positive on the fertiliser front is actually the potash market.

“We continue to see really good global supply…they are continuing to produce and export a sizable chunk, so there is not necessarily any major supply issues on the potash front.”

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