Alistair Wallace Director, Senior Consultant and Nitrogen Team Lead CRU Group Nitrogen Outlook
Strong demand fundamentals underpin nitrogen market, but... Presentation Structure...producers have overcooked medium term capacity investment. Geopolitical risk is higher than ever and tightening markets. China s huge capacity is driving the global nitrogen market. For now.
Demand side fundamentals
Crop prices stabilise; medium term gains likely 600 Export prices (US$/t) 500 400 300 200 100 0 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 Wheat Corn Soyabeans
Population and macro economy support crop acres 200 180 160 140 120 100 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Index (2000 = 100) Population Grain consumption Vegetable oil consumption Meat consumption
This has also been supported by N affordability 300 250 Jan 2006 = 100 200 150 100 50 Jan 11 Jul 11 Jan 12 Jul 12 Jan 13 Jul 13 Jan 14 Jul 14 Index of Urea Prices Index of Crop Prices Affordability index
Driving crop areas and higher application rates Area (million hectares) Grains&Rice Oilseeds Fruit&Veg Other crops Total N fertilizer 1,800 128 130 116 1,600 105 110 1,400 81 214 90 1,200 218 204 127 192 120 70 1,000 108 95 285 253 800 187 232 50 600 400 671 690 738 765 200 30 10 Nutrient demand (million tonnes N) 0 2000 2010 2014 2019 10
China over applies N, while others under apply 140 120 Brazil China P+K application (kg/ha) 100 80 60 40 India USA China applies more fertilizer to corn than the USA but achieves lower yields 20 0 Argentina Mexico 0 50 100 150 200 250 N application (kg/ha) Bubble size = yield
Population will continue driving N consumption millions 10,000 Global population N consumption pp kg N/pp 20 9,000 18 8,000 16 7,000 14 6,000 12 5,000 10 4,000 8 3,000 6 2,000 4 1,000 2 0 0 1750 1800 1850 1900 1950 2000 2050
Overcooked supply
More capacity built this decade than previous 25yrs Ammonia capacity (000 tonnes) 80000 70000 60000 China Rest of the World 50000 40000 30000 20000 10000 0 1950 1960 1960 1970 1970 1980 1980 1990 1990 2000 2000 2010 2010 2020
Urea supply additions: Today to 2019 NA 5.0 mn LATAM: 3.3 mn CIS: 4.2 mn Mid E Africa 1.1 mn 4.4 mn S. Asia 1.9 mn China 14.5 mn SE. Asia 1.9 mn
Investment lowers trade & hurts marginal supply Investment in North American and LATAM capacity Investment in low cost CIS, MENA & SS African export capacity
Weak prices have slowed building, so has inflation
Urea capacity growth is now outstripping demand Index: 100=2010 Capacity Consumption 190 180 170 160 150 140 130 120 110 100 90 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
However, the result is a forecast of low op rates Mn tonnes 160 140 120 100 80 60 40 20 Spare capacity Non China prod Op. rate Exc China exports 105% 100% 95% 90% 85% 80% 0 75% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Supply disruptions
Physical disruptions in Ukraine tighten ammonia Urea availability fallen to 40% (100kt/m). Ammonia down to 25% (25 30kt/m)
At risk tonnage in the merchant ammonia market Trinidad 3% N. Africa 3% Ukraine 3% Trinidad 24% RoW 91% RoW 61% N. Africa 8% Ukraine 7% Global Ammonia capacity = ~200 million t/y Traded Ammonia Market = 19-20 million t/y
Urea now worth less than the value of its ammonia $/tonne Nitrogen Black Sea Nitrogen Pricing 1200 1000 Upgrade differential Urea $/tonne 250 200 800 Ammonia 150 600 100 50 400 0 200 50 0 100 Jan 11 Mar 11 May 11 Jul 11 Sep 11 Nov 11 Jan 12 Mar 12 May 12 Jul 12 Sep 12 Nov 12 Jan 13 Mar 13 May 13 Jul 13 Sep 13 Nov 13 Jan 14 Mar 14 May 14 Jul 14 Sep 14 Nov 14
China driving the market
Pressure is growing for more liberalisation Originally implemented in 2005 to decouple the domestic agricultural market from international prices As Chinese urea capacity expanded, the export duty has revised down; in 2014 high season = RMB40 +15%, while low = RMB40 This is still market distorting with inventorying and warehousing tactics weighing on the low season
Capacity and liberal export policy boost China s role Chinese Urea Exports Exports FOB Black Sea ('000 tonnes) FOB Black Sea ($/t) 1,800 550 1,600 1,400 1,200 500 450 1,000 400 800 350 600 400 200 300 250 0 200 Jan 11 Mar 11 May 11 Jul 11 Sep 11 Nov 11 Jan 12 Mar 12 May 12 Jul 12 Sep 12 Nov 12 Jan 13 Mar 13 May 13 Jul 13 Sep 13 Nov 13 Jan 14 Mar 14 May 14 Jul 14 Data: GTIS, CRU
China is limiting the impact of Ukraine s troubles Millions 1.80 1.60 1.40 1.20 1.00 0.80 0.60 0.40 0.20 0.00 Monthly Exports Range 2009 2013 4 yr average 2014 2014 forecast Millions 12.0 10.0 8.0 6.0 4.0 2.0 0.0 Cumulative Monthly Exports 2010 2011 2012 2013 2014 2014 forecast Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Millions Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 0.50 0.45 0.40 0.35 0.30 0.25 0.20 0.15 0.10 0.05 0.00 Monthly Exports Range 2009 2013 4 yr average 2014 2014 forecast Millions 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Cumulative Monthly Exports 2010 2011 2012 2013 2014 2014 forecast
Chinese export values price setting since mid 2013 $/mt 550 Prilled FOB Black Sea Prilled FOB China 500 450 400 350 300 250 200 Jan 2010 Mar 2010 May 2010 Jul 2010 Sep 2010 Nov 2010 Jan 2011 Mar 2011 May 2011 Jul 2011 Sep 2011 Nov 2011 Jan 2012 Mar 2012 May 2012 Jul 2012 Sep 2012 Nov 2012 Jan 2013 Mar 2013 May 2013 Jul 2013 Sep 2013 Nov 2013 Jan 2014 Mar 2014 May 2014 Jul 2014
China s urea market is in chronic oversupply 120 100 80 60 40 20 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Million t/y Spare capacity Exports Domestic consumption
China less competitive as labour costs increase 65% RMB/hr 60.00 50.00 40.00 2014 2019 30.00 20.00 10.00 0.00 Hainan Hebei Shandong Henan Fujian Shanxi Heilongjiang Guangxi Zhejiang Guangdong Liaoning Jiangsu Jilin Guizhou Sichuan Tibet Jiangxi Yunnan Hubei Shaanxi Hunan Ningxia Anhui Chongqing Inner Mongolia Gansu Qinghai Tianjin Xinjiang Beijing Shanghai
Coal & fright markets tighten; RMB strengthens $/MMBtu 6.00 5.00 4.00 3.00 2.00 1.00 0.00 US$/tonne 20 15 10 5 2014 2015 2016 2017 2018 2019 RMB/USD 5.50 5.60 5.70 5.80 5.90 6.00 6.10 6.20 6.30 6.40 6.50 Cost per 1,000 km for Fertilizer Delivery in China 2014 2015 2016 2017 2018 2019 0 Jul 2008 Jul 2009 Dec 2009 2010 Apr 2011 May 2012 Feb 2013 Feb 2014
Market forces are distributing China s resources
In conclusion... 1. Strong fundamentals underpin both medium and long term nitrogen demand... 2....but the market looking oversupplied following a massive expansion of global urea capacity and Chinese export policy 3. This will weigh on global nitrogen operating rates; especially so for prilled urea 4. China is now the global swing producer and events in the country s N market will determine the medium term future of all N values 5. However, near term market remains prone to supply disruptions, especially on the ammonia side
This presentation is assembled by the expert staff of CRU s fertilizers team, using information from a wide range of sources, including the International Fertilizer Industry Association (IFA), various regional and national agencies, and suppliers of international trade statistics, including GTIS, as well as individual producers and exporters of these products.