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Nitrogen+Syngas 363 Jan-Feb 2020

31 January 2020

Market Outlook

Market Outlook

Historical price trends $/tonne

AMMONIA

  • US agricultural demand is expected to pick up in 1Q 2020, and farm inventories are low.
  • There are higher freight costs due to the onset of the new IMO regulations which may put a premium on domestic capacity and delay any production cuts made in response to low pricing in both the US and European markets. Both regions are also buoyed by continuing low natural gas prices; 40% down in Europe in 2019 compared to 2018, and 20% down in the US. The US has seen ammonia imports fall as domestic capacity rises.
  • Russian ammonia exports are up, rising by around 500,000 tonnes in 2019 compared to the previous year, helping to counter the removal of Iranian tonnage, which was down 60% in 2019 due to renewed US sanctions.
  • More demand is expected from OCP in Morocco for ammonium phosphate production.

UREA

  • Agricultural demand is expected to generally pick up in 2020 following a poor year in 2019, with spring corn planting requiring significant tonnages. Overall demand is forecast to be 200,000 t/a up in 2020.
  • However, urea stocks are comparatively high in the US after last year’s disappointing application season, and end of year applications were also down due to poor weather.
  • Indian buying has so far supported the market, with record rainfall helping to boost demand last year. India received 3.7 million tonnes in 4Q 2019 and so far has contracted for 700,000 t in 1Q 2020. Indian urea imports were up 34% in 2019.
  • China however has more urea available due to falling coal prices and a favourable dollar exchange rate which have helped importers to turn around the country’s long-term decline in urea exports, for now.

METHANOL

  • Methanol markets will see more new capacity this year. In Iran, two new plants are expected to come on-stream, at Bushehr and Pars, each with a capacity of 1.65 million t/a. In spite of US sanctions, Iranian deliveries into China are expected to increase.
  • This comes on top of additional tonnage expected from Russia and Trinidad – the latter from the new Caribbean Gas Chemicals unit, scheduled for 1H 2020.
  • Chinese MTO production has been running at record levels, helping to absorb some of the excess, and production outages in southeast Asia have also helped, but new conventional olefins production in Asia may squeeze Chinese MTO producers going forward, in spite of new MTO capacity coming on-stream, and reduce Chinese demand for methanol.
  • Overall methanol markets look bearish for 2020.

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Price Trends

Global sulphur prices were mostly assessed flat in mid-January, with only slight changes for China, Indonesia and India, while the first quarter contracts for the Middle East, North Africa and Tampa increased from the previous quarter. Overall, the number of transactions taking place globally has declined as subdued demand has limited trading activity in most delivered markets. The current sulphur price environment has been shaped by the combination of rising Chinese demand and higher Middle East f.o.b. prices in the second half of last year. As a result, some consumer markets such as Indonesia and India have been subject to upward pressure in order to remain attractive destinations. But demand remained lacklustre across delivered markets, leaving prices relatively stable.

Protectionism casts a shadow over the new year

The start of a new year is a traditional time to take stock of the previous 12 months and look ahead to the next. In this regard, CRU’s most recent annual client survey, conducted at the end of December last year, makes interesting reading as to your own concerns for 2025 and beyond. There were numerous responses across commodity and financial sectors, and broadly based worldwide, if slightly skewed towards Europe and North America, but across all of these the key worry for the coming year clearly emerged as trade tariffs and protectionism. This is perhaps unsurprising, given incoming US president Donald Trump’s avowed intent to impose blanket 20% tariffs on all goods entering the US, and up to 60% on China. While most clients did not think tariffs would rise as much as some of Trump’s rhetoric might suggest, most expect rises of 5-10% across the board, and Asian businesses are most concerned. CRU’s most recent position paper on US tariffs highlights some of the internal political and legal challenges in implementing these, but does acknowledge that some rises will be inevitable, and may well produce the kind of reciprocal measures last seen in the previous Trump administration’s trade war with China and the EU in 2018.