Expected rise in nitrogen prices called unrealistic

Equity markets are mistaken in their bullish outlook for nitrogen fertilizer prices, says Credit Suisse.

“The sentiment pendulum in nitrogen remains far too positive in our view as pricing is likely to fall below expectations,” the financial services company said in a recently released report.

One of the reasons the bank is pessimistic about nitrogen fertilizer prices is that a large portion of the new capacity originally slated for 2017 is being rolled into 2018.

Credit Suisse is forecasting 4.76 million tonnes of additional urea supply hitting the market in 2018. And that is excluding the 1.2 million tonnes coming online in China.

To put that in perspective, it is more than the 4.48 million tonnes of urea that China exported in 2017.

The bank believes most investors are not properly accounting for the 1.5 to 1.7 million tonnes of additional supply that will materialize in the United States in 2018.

“This represents 25 to 30 percent of U.S. urea import requirements,” it said.

“Put simply, market headwinds many were anticipating in 2017 appear to be being pushed off by roughly a year, delaying any anticipated recovery.”

The market believes the new U.S. capacity will stem the tide of imports but Credit Suisse said exporters will still want to maintain a foothold in the U.S. market because of its stability.

The bank forecasts continued volatility in nitrogen prices in 2018, although the lows will be higher than they were in 2017. Prices are expected to stabilize in 2019 and 2020 as additional supplies in each of those years are expected to be about half what it is in 2018.

Ryan Furtas, input market analyst with Alberta Agriculture, has read other reports that corroborate Credit Suisse’s flat price outlook for nitrogen fertilizer.

He tracks the retail price of urea in Alberta, which has been trending downward since the spring of 2014.

There have been some ups and downs but in general prices have fallen to an average of about $500 per tonne in 2017 from $644 per tonne in 2014.

Some people think nitrogen prices have reached a floor and Furtas agrees with that sentiment.

“It seems to have a little bit more firmer footing,” he said.

Of course, the wild card is China.

Credit Suisse said China is expected to continue to be the price setter in urea markets.

China is expected to export three to five million tonnes of the product in 2018, which is well below what it used to ship a couple of years ago. Rising coal prices have constrained supply in that country.

China is also facing stiff competition from new capacity out of Eastern Europe and Southeast Asia, as well as generally improving global operating rates.

“The bottom line is we view implied Chinese prices as more of a price ceiling over the next several years versus a price floor,” stated the bank.

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