Urea prices, at amongst their lowest in four years, have found a floor after reaching levels at which an unusually large number of producers are making thin, if any profits, fertilizer group Acron said, as it unveiled a 28% drop in earnings.
Urea values have declined not just to the marginal cost of Chinese producers, "some of whom are currently operating at a loss", but – thanks to a quirk of energy values - to levels at which factories in other countries are struggling to breakeven too, Acron said.
A drop in the cost of the coal which Chinese producers typically use as their power source for making urea, an energy-intensive fertilizer to make, has rendered their costs of making urea "comparable to that" of the gas-based plants more common in the likes of North America, the former Soviet Union and Europe.
"As a result, the number of marginal cost producers has gone up," Russia-based Acron said.
This in turn means that the "potential for further urea price reductions appears to be limited", with further reductions in values risking a drop in output which would in turn support the market.
Urea prices, as measured in the Baltic, were $246 a tonne as of last week, well below the $800 a tonne reached at their 2008 peak, and down 23% so far this year, according to Credit Suisse.
The bank sees the decline in values continuing, with prices down 4% week on week.
However, it saw greater signs of stability in other nitrogen markets, including ammonium nitrate (AN), in which values were flat over the last week, and down only 2% week on week to $200 a tonne in the Baltic – albeit down 30% so far in 2015.
NPK, a mixture of nitrogen, phosphate and potash fertilizers, has proved more stable, declining by 7% this year, to $340 a tonne in the Baltic.
Acron said that "unlike the prices of basic products, NPK prices tend to demonstrate less volatility and remained almost unchanged from the beginning of the year.
"However, in September NPK prices finally declined following prices for basic products."
Prices of ammonium nitrate have been under pressure from Brazilian factors, including the weaker real and higher interest rates, which have "brought down the purchasing power of local farmers, who are major AN consumers", Acron said.
The comments came as Acron unveiled a drop in earnings for the July-to-September quarter to 2.26bn roubles, from 3.66bn roubles a year before.
Revenues rose 68% to 28.58bn roubles, supported by the devaluation of the rouble, which boosts the value the group of sales of nitrogen fertilizers which are priced in dollars on the international market.
Operating profits at the group more than doubled to 11.92bn roubles.
However, profits were dragged lower in part by comparison with last year when the group logged a 4.94bn-rouble gain on asset disposals, and too increased finance costs, also a reflection of the weaker rouble.
Acron is seen as a low cost producer, in part thanks to its access to low-cost Russian gas supplies, but also thanks to self-sufficiency in phosphates, as required for example in producing NPK.
Phosphates, meanwhile, are typically distributed as compounds with nitrogen, eg monoammonium phosphate (Map) and diammonium phosphate (Dap).