SASKATOON — The short-term outlook for urea calls for falling prices but the medium-term forecast is the opposite, according to Argus Media.
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“Prices are coming under pressure,” Sophie Mason, manager of nitrogen analytics with the firm, said during a recent webinar.
Limited demand is going to be the key market factor over the next couple of months.
“We don’t expect to see much strength in prices. If anything, we expect prices to come down somewhat,” she said.
Demand has been lackluster from the countries that typically drive the market.
Brazil imported a record amount of the nitrogen fertilizer in 2021 but its purchases fell in 2022 and are expected to drop even further in 2023 due to slumping corn prices and currency problems.
India imported a whopping 9.4 million tonnes of urea in 2022 but purchases are expected to plunge by three million tonnes in 2023.
Consumption isn’t falling but imports are because the country is busy revitalizing some of its old, mothbaled plants. It is now producing a record 2.8 million tonnes of urea per month.
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On the other side of the balance sheet, China has been reducing its exports as it shutters its less environmentally friendly plants and clings onto its own production to keep domestic prices in check for farmers.
The country will likely export slightly less than four million tonnes this year, down from more than five million tonnes a couple of years ago.
Argus believes prices will head down for the next couple of months and then steady out for the rest of the first quarter of 2024.
They will trend higher in the second quarter as seasonal demand materializes in the United States and the European Union.
In the third quarter, demand will soften and global prices will test the 2023 floor of US$260 per tonne f.o.b. Middle East, which was a fraction of the 2022 high of nearly $1,000 per tonne.
Demand will be stronger in 2024 as buyers become more comfortable with today’s price environment.
Bt there will also be more supply because of fewer outages and the market will eventually move into a surplus position.
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The defining factor for the medium-term outlook is the limited investment in new capacity over the next five years.
“It’s going to become interesting,” said Mason.
Fertilizer companies have little interest in building urea plants. There has been a shift to low carbon products like blue and green ammonia.
An additional 2.2 million tonnes of capacity is coming online in 2024 and then it tails off until 3.4 million tonnes is added in 2028.
By comparison, seven million tonnes of capacity was added in 2022 and 6.6 million tonnes in 2021.
Russia is one of the few countries that is adding capacity, but that is in doubt because it depends foreign contractors, who are not currently welcome in the country.
In the meantime, urea demand is expected to continue to expand.
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“Really, we do expect to see prices going from strength-to-strength overthe next few years until some of that capacity can come online towards the back end of the decade,” said Mason.
The forecast assumes that the cost of production is going to remain elevated because of high natural gas prices.
“Should that change in any significant way, it’s going to have a huge impact on our balance and our price forecast,” she noted.
Urea prices skyrocketed in 2022 when Russia curtailed natural gas shipments to the EU, driving up the cost of production in that region.
The average cost of production in the EU topped $1,700 per tonne, which resulted in the closure of the least efficient plants, said Owen Gooch, urea analyst with Argus.
Production costs have since come down a lot, to where most plants can generate a reasonable profit. But three nitrogen plants in the EU have confirmed they will be closed this winter.
Gooch said production economics in the EU remain on a “knife’s edge.”
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Global gas supplies are expected to remain tightly balanced throuh the winter of 2024-25.
It won’t take much for gas prices to take off again. An unplanned maintenance outage, a strike, or a cold winter in the EU could change the dynamics in a hurry.
Contact sean.pratt@producer.com
