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China changes expected to hike fertilizer prices

Fertilizer industry executives say nitrogen fertilizer prices are on the rise.

Bert Frost, vice-president of sales with CF Industries, said seismic changes in what was once the top urea-exporting nation are a big reason the nitrogen supply/demand situation is tightening.

“What we’re seeing in China is monumental,” he told delegates attending BMO Capital Markets’ Farm to Market Conference.

Twenty years ago, the world laughed when China announced it was going to become self-sufficient in urea production.

Not only did China attain that goal, it became the world’s largest urea exporter. Just a few years ago it shipped out 14 million tonnes of the product, accounting for nearly one-third of global trade.

But a lot of China’s urea production plants are coal-fired and a government crackdown on pollution, including the elimination of subsidies, is forcing some fertilizer plants to temporarilyidle production or shut down altogether.

A country that was once the lowest cost producer of urea has become the highest cost producer and the highest priced market for urea in the world, said Frost in a webcast of his presentation.

China’s annual exports have plummeted to two to three million tonnes and he doesn’t see them recovering from that level.

“That volume will stay in the two to three million tonne range,” said Frost.

“(China) will not be a major participant going forward.”

He also pointed to rising corn prices as an inflationary force for nitrogen fertilizer prices. He believes it will lead to more corn acres than earlier anticipated in North America, which in turn will increase the application of urea and UAN fertilizer.

That should result in low inventories of nitrogen fertilizer in the system and that should lead to rising prices.

“I think pricing structure compared to last year will be significantly higher,” said Frost.

Another factor to consider are the proposed U.S. economic sanctions on Iran, which would remove about two million tonnes of Iranian urea exports from the market or about five percent of the global trade.

Chuck Magro, president of Nutrien Ltd., also believes nitrogen fertilizer prices will continue to firm. He said demand is growing at a clip of two percent per year and most of the new capacity expansion is already up and running.

“We expect the nitrogen market to continue to tighten from its bottom in 2016, particularly as the pace of the new capacity slows after 2019,” he told the same conference.

Magro added that rising energy prices in places like Europe and China as well as costs associated with meeting new environmental regulations in China will also boost nitrogen fertilizer prices.

“We believe this is good news for the nitrogen business and now that we’re one of the largest nitrogen producers in the world, I think this will be good for the company as well,” he said.

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