Fertiliser Shipments Through Strait of Hormuz Increase Post-Iran War Deal

Synopsis

Before the U.S. and Israel launched the war on February 28, about a third of globally traded urea - the world's most widely used fertiliser - and nearly half of seaborne sulphur, ‌a key input, typically flowed ⁠through the ⁠strait.

LONDON: Fertiliser shipments through the Strait of Hormuz have begun picking up following an interim deal to end the Iran war, data showed, though analysts say it will take time before they return to pre-conflict levels and provide relief to the market.

Before the U.S. and Israel launched the war on February 28, about a third of globally traded urea - the world's most widely used fertiliser - and nearly half of seaborne sulphur, ‌a key input, typically flowed ⁠through the ⁠strait.

The near closure of the critical waterway for most of the conflict, however, sharply reduced those shipments.

Since the deal between Washington and Tehran was announced on June 15, around 640,000 ​metric tons of sulphur - critical for making fertilisers like diammonium phosphate, or DAP - have left the strait for destinations including Indonesia, Morocco, Tanzania and China, according to the ​latest analysis of flows by price reporting agency Argus. That compares to a total of just 80,000 tons over the course of the 3-1/2 month war.

Some 427,000 tons of urea, meanwhile, have also transited the strait in the wake of the interim deal, versus 275,000 tons during the war, the ​latest data from consultants CRU showed.

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Shipments of other key fertilisers like phosphates and the fertiliser ⁠input ammonia have ‌also edged up post-deal.

FOOD CRISIS FEARS EASE, BUT NOT BUSINESS AS USUAL

Fertiliser prices spiked during the war, prompting farmers to apply less product to their crops. This raised concerns that a prolonged closure of the strait could blunt crop yields and trigger ⁠a global food price crisis.

There are over 500 ships currently stranded in the ​Gulf, and while traffic has picked up this week, it remains at a fraction of the average of ​125 ships per day that transited the waterway before the war.

"The flows trickling through the strait are a relief. But at the same time, the majority will be against old sales. They're not going to provide fresh tonnages to the market," said Sarah Marlow, head of fertiliser pricing for Argus.

While bulk carriers are slowly exiting the strait, there are no empty carriers heading back in to collect new cargoes, Marlow said, adding that traders are striking very few fresh fertiliser sales deals in the region.

For carriers to head back in, many war-related obstructions must first be removed, analysts say. The ‌waterway, for example, needs to be successfully de-mined. The current vessel backlog must also be cleared, and shippers need to feel confident sailing back in.

The interim U.S.-Iran deal must also result in a permanent truce.

The U.N. International Maritime Organization, however, had to ​pause its operation ​escorting ships through the strait on Thursday after ⁠a vessel reported an attack, raising fresh concerns over whether the deal will hold.

A BEST-CASE SCENARIO

"Fertiliser volumes through the strait are not going to be at pre-conflict levels for some time," said Willis Thomas, chief fertiliser analyst at CRU. "Even in a best-case scenario, August is the earliest we see ​a significant pickup in traffic."

There are still around 600,000 tons of urea stuck inside the strait, according to CRU, while Argus estimates 300,000 to 400,000 tons of sulphur are waiting to exit the waterway.

Fertiliser production facilities in the Gulf were also attacked during the war and need to be repaired. While experts say the damage is relatively limited, it will still slow the rate at which fertiliser price spikes can unwind.

"Fertiliser production in the Gulf could mostly recover," said shipping association BIMCO.

"However, exports from Qatar and the United Arab Emirates could remain below pre-war levels (in the medium term) since they sustained damage to gas fields and refineries."