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Crop & Chemical Dashboard: Agricultural cycle weakening

International prices of major crops—corn, wheat and soybeans—are under pressure amid signs of ample supply; this is an added worry for the world agrochemicals industry, which has already been struggling with destocking. In the chemical markets, a demand recovery in key regions may not be strongly felt until 2HCY24, and meanwhile, overcapacity in China remains a concern even as Red Sea supply disruptions further add to uncertainty.

Continue to expect only a slow and subdued recovery in chemical demand

India’s exports of organic and inorganic chemicals increased 23.9% mom but declined 1% yoy in December 2023, while imports dropped 0.1%/15.6% mom/yoy. US chemical production for November 2023 rose 0.7%/9.2% mom/yoy, albeit off a weak base for December 2022, while chemical railcar holdings—a measure of volumes—increased 2.7% yoy on a 13-week moving average basis for the week ending January 13. US data indicates continued softness in pricing, with chemicals producer prices down 5.3% yoy and import prices down 0.2%/10.8% mom/yoy. Dow Chemicals, in its recent quarterly earnings report, suggested that inventory levels are low throughout the chemical supply chain, but said that a meaningful pickup in restocking will happen only once interest rates start to come down in the US or energy costs start to move up.

Agricultural crop price cycle has weakened

International futures prices of the three most important crops—corn, soybeans and wheat—are now down 20-35% yoy after having softened another 4-7% sequentially during the past month. The weakness is due to rising supplies in the world market amid weak demand in general, although India’s biofuels mandate for corn has lent some support to local prices. If farmer demand for agrochemicals weakens amid falling crop prices, the beginning of restocking may be further delayed. Meanwhile, climate remains a concern, with below-normal reservoir levels in southern India a worry, as is low snowfall in the Himalayan regions, which is feared to potentially impact groundwater levels ahead of Kharif sowing. In the fertilizer markets, prices of rock phosphate and ammonia softened. Broiler chicken prices have fallen on higher output.

Chemical price trends

Chemical prices generally remain soft, with little signs yet of any meaningful move upward. Soda ash spot prices in China have corrected in recent weeks after a short-lived spike, while soda ash import prices into India, too, remain weak. International phenol spreads have softened in recent weeks. Prices of Atul’s key product categories, including 2,4-D herbicide, p-cresol, epoxy resins and sulfur black remain weak, although there is a slight uptick in some cases off a depressed base. In the refrigerant category, prices of R-22 and R-32 have corrected in January 2024. Prices of ATBS (Vinati Organics) also eased slightly in January 2024, while prices of MEHQ (Clean Science) ticked up during the month. It remains to be seen whether Red Sea supply disruptions lead to any sustained upward pressure on chemical prices or disrupt volumes.