Fertilizer International 501 Mar- Apr 2021
31 March 2021
Nitrogen market adjusts to the new normal
NITROGEN MARKET REPORT
Nitrogen market adjusts to the new normal
ICIS, the independent commodity intelligence company, provides an overview of the nitrogen market. The world supply of urea looks set to outpace market demand in 2021, as several new projects come on-stream. Global ammonia demand, in contrast, is expected to rebound strongly this year after a difficult 2020. The flurry of recent green ammonia projects announcements is another significant market development.
UREA
Urea market braces itself for new supply
A significant increase in world supply of urea in 2021 will outpace global demand, as several new projects come on-stream. This is likely to pressure prices in the second half of the year, although delays to the start-up of new plants should cushion the market impact.
Record prices
In January, urea prices increased to record highs as buyers in Europe rushed to cover their positions, following unexpected early demand from the US. Egyptian prices, for example, touched a six-year high in late January. Since then prices have cooled slightly, although a second wave of demand from India and the US is likely in March.
The major rally in urea export pricing, which began in mid-December last year, appeared to plateau in early February (Figure 1). The upswing in the Brazil cfr price, which began in early November, is also showing sign of levelling off (Figure 2).
Major new capacity emerges
Originally, a total of 12.6 million tonnes of new capacity from India, Nigeria, Russia, Brunei and Iran was projected to come on-stream in 2021. This covers well-advanced production capacity that is either under construction or has already been built. Urea capacity increases expected in 2021 include rises of at least:
- 2.6 million tonnes in India
- 2.6 million tonnes in Nigeria
- 1.9 million tonnes in Russia
- 700,000 tonnes in China.
However, latest projections suggest most of these plants will be now be delayed until late 2021 or 2022 – meaning only around 2.5-3 million tonnes of new urea supply is now expected to hit the market in 2021.
Only one of the four government-owned 1.3 million t/a urea production units in India, for example, is now expected to come on-stream in 2021 due to project delays. Nevertheless, the similar sized Matix urea plant in Panagarh, West Bengal, should come online in April, after a supply of natural gas feedstock was finally secured. The Matix plant has been inoperative for over three years, after starting up for a brief period in October 2017.
Two urea plants in Nigeria – the new world class Dangote plant and Indorama’s second urea line – are expected to become operational in mid-2021, although doubts about timings still remain with no official word yet from either producer.
New Russian production capacity, meanwhile, including units at Acron, Metafrax and TogliattiAzot, is also likely to come on-stream between mid-2021 and the year’s end.
In Brunei, current shipment capabilities are reportedly inadequate, suggesting significant exports will only begin once port infrastructure has been revamped.
Iran – a special case
The above 2.5-3 million tonnes estimate for extra urea supply in 2021 does not include additional production from Iran. It is therefore worth noting that the 1.08 million t/a Lordegan plant in Iran, which started production in late 2020, will ramp-up and achieve full capacity in 2021.
Iran currently has a total urea production capacity of nearly 7.9 million tonnes, with less than half of this quantity being exported. Despite continuing US sanctions, the country has continued shipping to Brazil and Turkey, together with a few cargoes to India via China.
Although there is now the prospect of sanctions being lifted, due to the Biden administration’s softer stance on Iran, this could take several months or even be deferred until 2022.
The impacts of supply
Even with the delays and the uncertainty surrounding Iran, 2.5-3 million tonnes of extra urea supply this year is a significant volume for the market to digest. For this to happen, uneconomical or high cost plants in China and Ukraine would need to permanently shut or be regularly shuttered in slower months.
In any case, the Arab Gulf and Egypt will still face a squeeze and increasingly need to look towards Asia to sell their tonnages, as new tonnes from Nigeria have become more competitive in their traditional markets such as Latin America.
“Nigerian cargoes will upset [the urea market in] Brazil and South America as freight advantages are there for them. Some southern European markets and Turkey may be hit too. [That means] Middle Eastern producers and Egypt may now have to look more east than west,” one trader told us.
China ended up exporting 5.45 million tonnes of urea in 2020, according to the ICIS supply & demand database, a 10 percent rise on the 4.94 million tonnes exported in 2019. Exports from China are likely to remain limited this year, in our view, given the continuing focus of the Chinese government on national food security and supplying the domestic market.
Rising demand offers some respite
World urea capacity is set increase by 14 million tonnes during 2019-2021 to reach 223 million tonnes, according to the latest International Fertilizer Association (IFA) estimates (Fertilizer International 500, p13). Not all of this additional capacity will translate into production though. Indeed, the IFA predicts that urea supply will grow to 197 million tonnes in 2021, while demand will grow by 1.3 percent year-on-year to reach 185 million tonnes. Encouragingly, such an increase in demand would digest a major chunk of the potential 2.5-3 million surplus tonnes of urea anticipated.
Two regions, South Asia and Latin America, are expected to be key drivers of fertilizer use in 2021. However, as always when it comes to the outlook for crop-based fertilizer demand, weather conditions will also be key, especially in the US and India. Currency fluctuations and gas prices, by affecting global demand and production rates, will also be important market factors to look out for.
Keeping a watch on policy and regulation
The impact of new environment regulations in Europe and the UK, which specify the coating of urea with inhibitors, will need to be watched in our view. That is because demand for standard commodity urea may see a drastic decline, if the rest of the region follows Germany’s lead and imposes similar regulations. Coating urea with an inhibitor can increase costs to farmers by e40/tonne, without benefiting yield, a rise that could prompt them to make the switch to nitrates instead.
The urea demand outlook for the rest of the world remains positive, however, with the agricultural sector remaining resilient in the face of the coronavirus-related slowdown. Governments are focussed on food security, especially in big markets such as China and India, a stance that bodes well for fertilizer and urea demand in 2021.
AMMONIA
Global demand strongly rebounds after a difficult 2020
Demand for ammonia from international fertilizer and chemicals users bounced back strongly in early 2021. This followed a difficult 2020 in which the Covid-19 pandemic underlined the market’s fundamental overcapacity (Fertilizer International 499, p4). Producers on both sides of Suez shuttered several ammonia units in 2020, as the economic fallout of the deadly virus hit manufacturers’ bottom lines. Cheaper feedstock costs did, however, manage to cushion Covid-19 impacts in certain regions.
While major plant outages and unscheduled shutdowns, by disrupting supply, have acted as catalyst for significant price increases in the first-quarter of 2021, the return of normal production schedules during the year’s second-quarter should see those price hikes reversed.
Black Sea exports of ammonia look set to remain higher than in previous years, with a continuation of the 2020 jump in Ukrainian output expected. The restart of Fertial’s Algerian plants will also add more tonnes to the merchant ammonia market.
A different picture east and west of Suez
West of Suez, manufacturers in Trinidad have now reversed previous capacity cuts to help meet robust demand from the US agricultural sector. The imposition of import duties on Moroccan and Russian phosphates (Fertilizer International 500, p8), meanwhile, is expected to boost domestic MAP and DAP production, and thus Mosaic’s ammonia requirements. Buyers in Mexico and Brazil will soak up around half of the remaining Caribbean volume. Another 2020 trend that will continue is the rising number of Trinidadian ammonia cargoes heading across the Atlantic to north Africa and Europe.
East of Suez, Middle Eastern ammonia producers will continue to dominate contract deliveries to buyers on both coasts of India. They will also be eyeing a larger slice of the spot market in South Korea, China and Taiwan too. Rival producers in southeast Asia, despite suffering from higher feedstock costs, will nonetheless be helped by lower freight costs and greater flexibility in delivery dates – due to their closer proximity to the region’s key import markets.
Whether more Iranian ammonia cargoes will hit the market in 2021 remains to be seen. The general view is that trade sanctions may ease, given the less hostile policy of the incoming Biden administration. Although Iranian material is only sold into three destinations at present – India, China and Taiwan – the country does have the potential to export more than the current 40,000 tonnes/month.
Chemicals manufacturers in northeast Asia typically schedule their turnarounds during the fourth-quarter. This usually results in an uptick in import demand early in the following year. Significant rebounds in the prices of popular chemicals, such as caprolactam and acrylonitrile, have also boosted current import demand, particularly in China and South Korea.
Green and blue ammonia projects accelerate
On the supply side, 2021 will bring more balance to the global supply and demand equation. This rebalancing follows the overcapacity, and consequent lower prices, created by the investment burst in new projects. While a handful of new ammonia plants are still due to come on-stream during 2021, none will add substantially to export volumes as, being dedicated plants, their ammonia output will be consumed by on-site urea units instead.
A snapshot of the rest of the market
PHOSPHATES
The imposition of import duties on Moroccan and Russian imports by the US Department of Commerce is expected to dominate the phosphates market in 2021. Consequently, phosphates producers in both countries are expected to divert their exports to Latin America and the Indian peninsula instead – the exact volumes depending on the how punitive the finalised duties end up being.
The arrival of import duties will, however, open up opportunities for phosphate producers in other countries to ship product to the US, including Egypt, Mexico, Jordan, Saudi Arabia, Australia and perhaps China.
As well as the shift in trade patterns, the supply/demand balance could be affected by the arrival of new phosphates capacity, with new production plants in Morocco and Egypt expected to come on-stream in 2021.
Also on the supply side, the production shift to higher margin products, at the expense of DAP and MAP, will also continue in 2021, as demand for speciality fertilizers rises globally.
The high phosphates market prices seen at the beginning of this year are expected to ease once Chinese export availability picks up again. By affecting production costs, rising raw material prices are also expected to weigh heavily on the market, as will the rising price of phosphoric acid in India and Morocco.
Russian producers, by focussing on supplying domestic and European farmers during the spring season, could take some tonnages out of the wider market.
SULPHUR
Sentiment is bullish in the global sulphur market. The ongoing supply tightness has shown no signs of easing and downstream demand also remains robust.
The market was active throughout February and prices have climbed to new highs, despite top importer China being absent for the week-long Lunar New Year holidays.
Supply tightness remains a key feature globally, particularly for regions which rely on refinery-produced sulphur. Refineries have lowered their output since 2020, in response to significantly lower fuel oil demand during the coronavirus outbreak. In the short term, the supply situation is not seen as improving, given the pandemic’s continuing impact.
In the US, sulphur production from refineries is at a near-decade low. Further supply concerns have also emerged recently after an intense polar storm swept across Gulf Coast states. This resulted in shutdowns and production cuts across a swathe of regional petrochemicals plants and refineries.
POTASH
News of two long-term supply settlements agreed between the Belarus Potash Company (BPC) and a consortium of Chinese buyers and regular customers in India, respectively, is still being digested by the global muriate of potash (MOP) market.
Both annual settlements were agreed at $247/t cfr (cost & freight) – a $27/t increase on the expired 2020 China agreement, and a $17/t increase on BPC’s previous settlement with India.
BPC’s rival producers have yet to set out their 2021 plans for potash contracts with key importing countries. But speculation remains that some producers may opt to renegotiate their own contracts, or focus on sales to higher-priced destinations, such as Brazil.
“We want to organise all sales around the world and calculate what we can perform,” said a source at one European producer. “Crazy times – [we] need to take a pause and evaluate the production and demand.” Elsewhere, producers have largely closed their order books for first-quarter sales of granular product into the booming Brazilian market. Producers who are sold out for the first-quarter have been heard asking $300/t cfr for second-quarter loading.
Canadian MOP major Nutrien is keeping an eye on Brazil, thanks to favourable crop economics and firmer MOP pricing, as well as considerable inventory-building in this key market ahead of what should be a strong Safrinha corn season. The company closed 2020 on a high note after reporting firmer sales in the year’s fourth-quarter. This was despite lower full-year 2020 sales, a sign that the global Covid-19 pandemic has hit the Canadian giant’s bottom line.
Finally, demand for sulphate of potash (SOP) in northwest Europe remains firm and pricing stable. However, there is speculation that a price uptick may be imminent, based in part on a shortage of liquid sulphur and sulphuric acid feedstocks for Mannheim production.
The other key concern troubling the SOP industry currently is the lack of shipping containers for product transportation. This confirms that national lockdowns and logistical snags continue to frustrate traders.
Additionally, the recent flurry of green ammonia/hydrogen project announcements is also significant. This demonstrates an acceleration of interest from investors, as they seek to tap into environmentally-friendly plants likely to attract financial incentives from public bodies and governments. Major fertilizer industry players like Yara, CF Industries and Fertiberia have all pledged to pour huge sums into green ammonia projects (Fertilizer International 499, p8) – a trend that can only harden as 2021 progresses.
Similarly, to help the fight against global warming, more blue ammonia projects are also set to be announced, with existing manufacturing sites being adapted and upgraded to capture carbon dioxide.
Efficient marine engines
The race to develop efficient marine engines that run on ammonia, rather than traditional fossil fuels, should provide another boost for ammonia market players. This will open up a new market segment, if and when the technology takes a step closer to the finish line.
Acknowledgements
This market report was kindly prepared for Fertilizer International by ICIS Fertilizers. The following are thanked for their individual contributions:
Urea: Deepika Thapliyal, Senior Managing Editor, Fertilizers.
Ammonia: Richard Ewing, Deputy Managing Editor, Fertilizers.
Phosphates: Sylvia Traganida, Senior Editor, Phosphates.
Sulphur: Erica Sesay, Market Editor, Sulphur.
Potash: Andy Hemphill, Senior Editor, Potash.
