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Nitrogen+Syngas 379 Sept-Oct 2022

30 September 2022

Market Outlook

Market Outlook

Historical price trends $/tonne

AMMONIA

  • Overall the market finds itself in a period of illiquidity, and is exposed to further uncertainty in 4Q because of the European energy crisis. Spiralling natural gas costs in Europe, with Dutch TTF gas prices trading around e200/MWh, are forcing European fertilizer producers to close ammonia capacity and buy in from overseas.
  • Outside of Europe, however, there is something of a price disconnect, with the market relatively bearish due to weak demand from major chemicals producers in northeast Asia and DAP producers in India and the US, freeing up cargoes for Europe. Fertiglobe in Spain bought a cargo from as far away as Indonesia for August delivery.
  • With Russia continuing to pressure Europe over Ukraine via lower gas deliveries, and winter approaching, there is no sign at present of gas prices settling down in Europe, and ammonia prices are likely to stay high.

UREA

  • The current period of market weakness is demand driven, but supply-side fundamentals remain extremely supportive. It is likely that there will be another rally within the next few weeks and months as importers in most markets are behind on purchases, waiting for the market to stabilise before firming up commitments.
  • CF Industries said in its quarterly earnings call that it expects the global nitrogen balance to remain tight for some time. Agricultural-led demand for nitrogen has been robust, with a need to replenish global grain stocks, and the USDA projects that US corn plantings will be lower than previously projected this season due to poor weather. Meanwhile the gas supply situation in Europe and to a lesser extent in Asia means greater competition for LNG cargoes and high production costs, leading to continued uncertainty about global production and export supply availability.
  • India is expected to tender on a regular basis into 2023 as increased domestic urea production is still unlikely to fully meet demand. Brazilian urea consumption is also forecast to remain strong in 2022, supported by high crop prices and higher plantings.

METHANOL

  • Chinese methanol sales were high in July, as domestic prices reached an 18 month low, but prices rebounded towards the end of the month due to unplanned outages at Iranian suppliers.
  • Although it is traditionally a slack demand season for methanol, US methanol prices rose by around 12% to around $1.14/gallon ($372/t) in July due to both planned and unplanned domestic production outages, and prices were looking to be towards $1.20/gal for August. Some producers were reported to have curtailed production due to oversupply. European prices rose in tandem with US rates, to around e380/t f.o.b. Rotterdam. Supply is expected to be higher in the second half of 2022, and demand stable leading to bearish market conditions.

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Tariff uncertainties cloud the picture

Nitrogen+Syngas went to press just a few days before Donald Trump’s swearing-in as the next president of the United States. While it is sometimes difficult to sort the truth from the hyperbole in his public pronouncements, nevertheless, if taken at face value, they would seem to indicate that we may be in for a turbulent four years in commodity markets in particular. While he is an avowed military non-interventionist, on the economic policy side he has emerged as a firm believer in the power of tariffs to alter markets in the favour of the US, and has promised 20% tariffs on all goods entering the US, potentially rising to 25% for Canada and Mexico, and 60% for his particular bugbear, China, sparking a scramble for wholesalers to stock up in the last few weeks of the Biden presidency. Trump previously raised tariffs on Chinese goods entering the US to 20% during his first term, and the Biden administration made no attempt to reverse this, and even added some additional ones, for example 20% on Russian and Moroccan phosphate imports.