Fertilizer International 503 Jul-Aug 2021
31 July 2021
Ammonia and sulphur market trends
FERTILIZER RAW MATERIALS
Ammonia and sulphur market trends
Ammonia and sulphur, as essential raw materials, underpin and drive fertilizer production costs. A steep and sustained rally has seen prices for both commodities reach new heights in recent months.
The prices of fertilizers and fertilizer raw materials continues to surge. In the second of week of June, CRU’s fertilizer price index saw its largest weekly increase since 2008. Urea, UAN, ammonia, DAP/MAP, potash and sulphuric acid prices all posted double-digit increases in what is turning out to be an extraordinary year for commodity prices.
This latest June surge marks a new acceleration in prices, confounding previous predictions that these would start to soften during the second-quarter of 2021. Instead, urea prices rose at the end of May on the back of the latest Indian import tender, while phosphate prices west of Suez reached 10-year highs. The political crisis engulfing Belarus, meanwhile, helped push potash prices higher in the US and Brazil. Sulphur and sulphuric acid prices also continued to climb.
Below, we examine the current state of the sulphur and ammonia markets, highlighting the key trends and major drivers.
SULPHUR
Prices more than triple year-on-year
Sulphur prices have been on a steep upwards trajectory in recent months, having more than doubled over the course of 2021 and tripled year-on-year. The Tampa contract price, for example, stood at $192/t cfr mid-June – compared to $83/t cfr in early January and $54/t cfr 12 months ago (Figure 1). Elsewhere, f.o.b. benchmarks such as the Vancouver and Arab Gulf sulphur prices have seen similar rises, with prices reaching heights last seen in early 2014.
The explanation? Well, since March last year – when the Tampa contract price, for example, reached a nadir of $36/t cfr – supply downturns have combined with healthy demand to rapidly push up sulphur prices.
In particular, disruption to the oil market from Covid-19 has had a dramatic knock-on effect by reducing sulphur availability. These Covid-related sulphur shortages were then further compounded by supply tightness in 2020’s fourth-quarter due to the winter closure of Russia’s river transport routes and depleted Chinese port inventories.
“All of these factors combined… led to the first inklings of a price run-up back in the fourth quarter. And …still, there’s no sign of a price ceiling being reached,” Meena Chauhan, Head of Sulphur and Sulphuric Acid at Research at Argus, commented in February1 .
Indeed, the sulphur price rally has continued well into the second-quarter of 2021, a sign that the prevailing tight supply-demand balance has yet to ease. Nevertheless, analysts are expecting to see a downward price correction during 2021’s second-half.
“[For] the second half of the year, the outlook is for slightly softer prices – also from the downstream processed phosphate sector as well. That, I think, provides some direction for the short-term view for sulphur. But, of course, Covid-19 is still that wild card factor for the market overall,” commented Chauhan1 .
Phosphates market conditions will ultimately be key. The strong link between sulphur prices and downstream phosphates prices is unsurprising, given that more than 90 percent of global sulphur trade is consumed in phosphate production.
At the time of writing, the DAP Morocco benchmark stands at $584/t f.o.b., up by more than 95 percent year-on-year, while the Brazil MAP price stands at $714/t cfr, 125 percent higher than a year ago (Figure 2). Phosphate prices at these levels – which represent eight- or nine-year highs – will undoubtedly continue to support sulphur prices, at least in the short-term.
“We are expecting [phosphate] prices after this year to start to correct downwards and experience pressure, particularly 2022 to 2023. While the market returns to normal, it’ll have to get used to absorbing new [DAP] capacity from OCP and India. We’re seeing new [MAP] capacity in Brazil as well,” says Claira Lloyd, Phosphate and Phosphate Rock Research Manager at Argus, commenting in May2 .
Sulphur supply hit by Covid-19 shocks
The demand shock to the oil market inflicted by the pandemic last year also hit sulphur availability, especially in those markets that rely heavily on oil-based sulphur recovery. In the US, for example, the fall in oil refinery run rates led to the loss of around 600,000 tonnes of sulphur supply in 2020, estimates Argus1 . Western Europe too has been similarly affected by lower run rates and the consequent tightening of sulphur supply and availability.
Looking ahead, significant sulphur capacity additions are expected over the next 2-3 years, countering the Covid-related supply disruptions of 2020 (Table 1). CRU expects the slump of 2020 – which saw sulphur output decline by 0.9 percent – to be reversed by a strong project-driven production rebound, both this year (+3.7%) and next (+5.2%).
Argus is forecasting just over three million tonnes of capacity additions in 2021, primarily in Gulf states, such as Saudi Arabia, Qatar and Kuwait, supplemented by the arrival of additional capacity in China. In Saudi alone, the ramp-up of the new Al Fadhili gas project this year is expected to add more than one million tonnes to Middle Eastern sulphur supply (Table 1). Covid-19 has delayed the arrival of some new sulphur capacity, however, most notably the 800,000 t/a capacity Barzan project in Qatar. Its commissioning has now been pushed back to this year.
Demand
Ups and downs in the phosphate market over the course of the Covid-19 pandemic have undoubtedly affected sulphur demand. Lockdowns in the first half of 2020 saw phosphate plant closures in China, alongside reductions in phosphoric acid production in countries such India – with a consequent downturn in sulphur demand. Operations did subsequently restart, however, supported by strong government backing for agriculture and food supply/security (Fertilizer International 496, p18).
Overall, sulphur demand fell by about 800,000 tonnes in 2020 versus 2019, estimates Argus.
“When we look at the whole [sulphur] demand picture – fertilizers and all other end uses – we did see a decline. But this was not uniform across all regions. Africa saw growth, so did Latin America and Southeast Asia also. As well, global demand for sulphur from the phosphoric acid sector actually grew marginally last year, supported by a Moroccan uptick in phosphoric acid production,” commented Meena Chauhan1 .
Trade – Africa rises as China falls
One major sulphur market development last year was the three million tonnes year-onyear plunge in Chinese imports in 2020. This was also accompanied by a fall in Chinese sulphur stock levels. China is currently the world’s largest sulphur importer, although that status may not last, given that its decline in imports looks set to continue over the short-term and possibly beyond.
“We are not forecasting any recovery in Chinese imports. In fact, we’re actually looking at China potentially losing its leading importer ranking in that medium-term forecast as well. So, this trend is set to continue,” concluded Chauhan1 .
This fall in Chinese sulphur imports is being driven by increased domestic supply, with four scheduled projects likely to add more than two million t/a to Chinese sulphur capacity over the near term (Table 1). Indeed, Argus expects Chinese sulphur production to increase by almost 40 percent out to 2025 – putting a permanent damper on import expectations.
This is likely to provoke a change in sulphur trade flows with Africa – Morocco in particular – taking up some of the slack. The continuing ramp-up in OCP’s phosphates production capacity should also prompt a significant rise in Moroccan sulphur imports.
Looking ahead, Argus is expecting extra sulphur capacity in both Canada and Middle East to make its way onto the global export market. This is linked to the entrance of a plethora of new Middle Eastern sour gas and oil projects (Table 1). The emergence of several new forming projects in Western Canada could also boost sulphur trading out of Alberta. n
AMMONIA
Prices – from sub $200/t to plus $500/t in a year
As with sulphur, the ammonia market has reached new heights in the last six months. After what analysts Profercy called a “crisis year” in 2020, ammonia prices have surged upwards this year, driven higher by a tightening market as strong demand collided with limited supply.
The market conditions 12 months ago could not have been more different. The spread of the Covid-19 pandemic across the globe in 2020 had a highly negative effect on industrial ammonia demand and energy/feedstock prices. The upshot was a marked downturn in ammonia prices.
One key price barometer for ammonia – the Yuzhny (Black Sea) f.o.b. benchmark – eventually bottomed out in the $170s/t in mid-2020. Around that time, Trinidad product was dumped in Turkey at below $145/t f.o.b., while Middle East ammonia prices also fell below $150/t f.o.b., reported Profercy3 . As for feedstocks, global gas prices were also depressed with European, Far East LNG and US gas all falling to around $2mmBtu.
Extreme weather and outages hit supply
The ammonia price rally that followed began to gather pace in mid-February. The combination of unexpected worldwide outages, extreme US cold weather and heavy Baltic sea ice (Fertilizer International 501, p8) conspired to create what Profercy called “the hottest market for ammonia since mid-2018”3 .
Plant outages triggered by February’s North American freeze affected as much as seven million t/a of US ammonia production capacity. The resulting disruption added to a string of unplanned outages across the globe – affecting plants in Trinidad, Egypt, Northwest Europe, the Middle East, Southeast Asia, Japan and Australia.
This widespread catalogue of problems was almost unparalleled, reported Profercy, adding fuel to a market that was already on fire. The Yuzhny ammonia price responded by rising to $350/t f.o.b., twice the level seen in mid-2020.
No respite was in sight as 2021 entered the second-quarter. Ammonia prices kept climbing into March with prices eventually hitting $500/t.
“$500/t ammonia is now a reality, from the US to China. This week already high Asian prices for ammonia hit $500/t cfr, just one week after $520/t cfr was paid in the US,” reported Profercy in mid-March4 . “There is no sign of the market easing in April as global demand is running at a strong pace with buyers unable to get ahead of the curve.”
On the supply side, production outages remained a major issue during March. Production was cut back in Trinidad, while Algeria was unable to operate at full rates.
Although Profercy does not expect the current ammonia price run-up to be sustained during the third-quarter, it predicts that the 2021 floor price should remain “vastly ahead” of the sub-$200/t f.o.b. levels of 20204 .
While major plant outages and unscheduled shutdowns, by disrupting supply, have acted as catalyst for significant price increases in the first-quarter of 2021, analysts ICIS initially expected the return of normal production schedules during second-quarter to reverse those price hikes (Fertilizer International 501, p20).
However, ammonia supply continues to be plagued with unexpected production outages. “[There is] more grim news for ammonia buyers as shutdown of the 1.2 million t/a SAFCO IV plant at Al-Jubail in Saudi Arabia threatens to force prices higher,” commented Richard Ewing, senior editor for ammonia at ICIS, on 10th June. “Nearby, Ma’aden is still assessing the impact of a fire at a 1.1 million t/a plant, but has dismissed talk it may be offline until August or September.”
The trajectory of the Tampa ammonia benchmark illustrates the rollercoaster fall and rise in ammonia prices seen over the last 12 months. The Tampa cfr price initially fell to a low of $205/t in mid-June 2020 before recovering to $255/t by the year’s end. Since then, it has rocketed to $545/t – a year-on-year increase of 150 percent (Figure 3).
Eventual price softening?
Ammonia benchmarks in Europe and the US did show signs of softening during April and May. The Yuzhny contract price for example, fell by $40/t from March highs to $415-$455/t cfr following a sale to OCP. Better availability in the Baltic, meanwhile, saw f.o.b. prices there fall by up to $5/t in April to $466-$467/t4 .
At the end of April, Mosaic agreed a Tampa cfr price of $545/t with Yara for May shipments. This Tampa contract price, a rollover of the previously agreed April price level, followed eight consecutive monthly increases. Remarkably, this price run included a hike of $115/t in March (Figure 3) – one of the largest single month-on-month increases of the last decade4 .
Elsewhere, ammonia prices in China and Southeast Asia remained firm overall.
Looking ahead, ratings agency Fitch recently raised its ammonia price assumptions for 2021 and 2022 (Black Sea f.o.b.) – from $220/t to $270/t and from $230/t to $260/t, respectively. The agency also increased its long-term price assumption beyond 2024 by $10/t to $260/t. These buoyant price levels for ammonia reflected expectations of strong agricultural demand globally and a rebound in industrial demand led by Asia.
“We expect supply to remain restricted in the short and medium term. Feedstock prices (gas) rose due to cold weather in the US, which resulted in supply curtailments for multiple US nitrogen plants. This coincided with Trinidad and Tobago’s country-wide capacity curtailments. Utilisation rates at ammonia plants have already been high, and we expect further incremental increases,” commented Fitch.
Supply and demand
The Covid-19 pandemic in 2020 underlined the market’s fundamental overcapacity. Producers on both sides of Suez shuttered several ammonia units in 2020, as the economic fallout of the deadly virus hit the bottom line for producers (Fertilizer International 501, p20).
These ammonia supply cuts did help balance the drop-off in demand in 2020. Trinidad cut production capacity by 500,000 tonnes in 2020, reducing its annual exports to 3.9-4.0 million tonnes. Russian production curtailments also supported the market, with 2020 exports at 4.4 million tonnes some 300,000 tonnes lower year-on-year.
Last year’s ammonia market downturn – and the attendant collapse in prices – hit Caribbean production particularly hard. Yara, for example, took one of its two ammonia plants in Trinidad offline in August 2020 (Fertilizer International 498, p10). The decision to temporarily idle the 1.5 million tonne capacity Tringen 1 ammonia plant followed a $50/t decrease in the US Gulf/Caribbean f.o.b price over the preceding three months to $150-170/t. Yara had been running Tringen 1 and its sister plant on the island, the 495,000 tonne capacity Tringen 2 plant, at reduced operating rates.
Yara’s plant shutdown followed a similar decision by Nutrien to take two of its four ammonia units on the island offline until the market recovered (Fertilizer International 499, p10). The Canadian fertilizer subsequently announced that one of these plants, the PCS-03 unit, would be closed indefinitely.
Trinidad’s ammonia industry had been struggling to compete, being squeezed by cheaper gas in rival regions such as the US and Europe. Previously, Yara had closed Yara Trinidad in 2019, its oldest and smallest plant on the island, due to its high production costs.
Global ammonia trade to rebound
Demand for ammonia from international fertilizer and chemicals users bounced back strongly in early 2021. 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 (Fertilizer International 501, p20).
In its prediction for the year ahead, Argus was forecasting a rebound in global ammonia trade to 19.3 million tonnes in 2021. This follows the estimated yearon-year fall in trade of 800,000-900,000 tonnes to 18.7 million tonnes in 2020.
Global ammonia demand, particularly from industry, fell significantly last year.India, one of the largest global import regions, saw its ammonia demand fall by around 200,000 tonnes to 2.5 million tonnes in 2020. Other regions, particularly Morocco and China, bucked the trend by maintaining steady demand last year.
Industrial demand in markets east of Suez was starting to recover at the end of 2020, while the outlook west of Suez remained uncertain. India and Morocco combined are forecast to require an extra 500,000 tonnes of ammonia demand this year.
Green ammonia projects accelerate
2021 will bring more balance to the global supply and demand equation, says ICIS. This rebalancing follows the overcapacity, and consequent lower prices, created by the previous 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.
The recent flurry of green ammonia/ hydrogen project announcements is, however, significant as it demonstrates an acceleration of interest from investors. Major fertilizer industry players like Yara, CF Industries, Nutrien and Fertiberia have all pledged to invest large sums in green ammonia projects (Fertilizer International 499, p8) – a trend that can only harden as 2021 progresses.
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