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Global fertilizer outlook: global nitrogen market forecast to be more balanced in 2020
Dec. 23, 2019
Various factors, such as lower energy costs and less demand due to weather issues, came together in 2019 to push world nitrogen prices lower. The outlook for 2020 and beyond is for a balancing supply and demand situation, which would support the global market, according to an analyst.
Yao Yao, a market research manager for Nutrien, gave the nitrogen outlook at the 2019 Fertilizer Outlook and Technology Conference held in mid-November in Savannah, Georgia. His outlook was hopeful after 2019 being a challenging year for the nitrogen industry across the world.
NITROGEN UNDER PRESSURE IN 2019
Yao said global nitrogen prices in 2019 were under pressure for several different reasons. Weak trade growth, lower energy prices and trade disruptions all combined to keep prices from rising much in the year.
Global nitrogen feedstock costs were estimated to be significantly lower in 2019, which brought down production costs. These lower costs were present through most of the year and put pressure on global nitrogen prices, he said.
Energy prices are forecast to be 40% lower in 2019 than 2018 in Europe and 21% lower in the U.S., he said. Other locations that saw decreases were Russia, down 8%, and China, which was down 12%.
Yao said the good news for fertilizer producers is supply and demand should be more balanced in 2020, particularly for urea. The urea cost curve indicates a $25-per-metric-ton reduction in marginal costs between 2018 and 2019, he said.
Russian ammonia exports should aid in this rebalancing in 2019. Russian ammonia exports have increased in recent years, from 3.4 million metric tons (mmt) to 4.2 mmt in 2018, to around 4.3 mmt to 4.6 mmt in the forecast for 2019.
"Expect Russian supply to balance the market," Yao said.
Yao said ammonia exporting has seen some considerable changes in recent years, led by the actions of the U.S.
Iran has its ammonia exports dropping by 62% from 2018 to the 2019 forecast, due to U.S. sanctions, he said. Other regions have picked up this slack, with Southeast Asia exports jumping by 19% and Russia seeing a 4% jump in ammonia exports during this time.
In addition, the U.S. has reduced net import demand by 27% from 2018 to the 2019 forecast. This was due to an increase of domestic production, he said.
Looking forward, China and Morocco could see increased ammonia imports in the coming years, Yao said. China has significant growth potential, and Morocco's phosphorus growth is projected to drive an increase in ammonia demand.
UREA SEE GAINS
Yao said positive regional trade balances appear to be in the cards for urea in the near term. Egypt, China and Southeast Asia all have increased urea production from 2018 to the 2019 forecast. Only Iran saw a dramatic decrease of 39% from last year, again due to the U.S. sanctions.
India saw a large increase of 34% in urea imports, from 6.3 mmt in 2018 to 8.5 mmt in the 2019 forecast, due to strong sales and lower urea production in the country, he said. Brazil saw a 7% increase in urea imports from 5.9 mmt in 2018 to 6.3 mmt in 2019.
There were some decreases in key urea importing regions. The U.S. and Turkey both saw decreases of 13% and 10%, respectively. The U.S. imported less urea because of increased domestic production.
Yao said China increased urea production because of market signals.
In 2015, China exported 13.8 mmt of urea, but dropped exports to 8.9 mmt in 2016, 4.7 mmt in 2017 and 2.5 mmt in 2018. The production drop was because of the well-documented production slowdown in the country, thanks to government regulations on the effects of manufacturing on the environment.
Yao said Chinese urea exports are set to increase in the 2019 forecast to 4.5 mmt to 5 mmt. This is due to improved operating rates and increased production in the country, he said.
"Stable urea export prices through Q3 2019 supported relatively strong Chinese exports; meanwhile, lower coal prices has reduced production costs," Yao said.
While increases are expected in Chinese urea exports in 2019, the environmental pressures are still expected to affect the Chinese urea market. Both production and future export capabilities are expected to be a market feature, despite the short-term rise in exports, he said.
U.S. N DEMAND TO RISE
Yao said he expects U.S. nitrogen demand to rebound in the 2019-20 fertilizer year, led by a projected strong spring season. Corn acres are expected to increase, and 58% of nitrogen consumption in the U.S. is used in corn production, he said.
U.S. nitrogen fertilizer consumption was 12.2 mmt in 2018, but fell to an estimated 11.9 mmt in 2019, he said. Nitrogen consumption is expected to rise to 12.2 mmt to 12.4 mmt in 2020.
Longer term, nitrogen demand is expected to continue to grow in the coming years, Yao added.
The ammonia demand in 2019 is expected to be 183 mmt and is forecast to be 197 mmt in 2023.
Nitrogen consumption is expected to be driven by Latin America and South Asian countries, he said.
Global demand of about 12 mmt and supply of 6 mmt from 2009 to 2014 led to increased nitrogen prices during this time, he said. Capacity addition in the U.S. at historical rates led to a global nitrogen demand of 10 mmt and supply of 15 mmt from 2014 to the 2019 forecast, which led to declining prices.
Yao said the forecast for 2019 to 2023 is for global nitrogen demand of about 8 mmt and supply of about 6 mmt. This appears to be a fairly well-balanced market with slow capacity additions, relatively stable Chinese urea exports and historical demand growth outside of China.
This appears to be a rapid tightening of global nitrogen supply and demand, he said.
By Russ Quinn
Source: DTN/The Progressive Farmer
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