Wholesale nitrogen fertilizer prices that have been on the rise since the summer of 2016 will stay firm for the first half of 2017 and then slump, according to two major manufacturers of the product.
Prices have been climbing be-cause of escalating coal costs, which have significantly curtailed Chinese urea production and exports.
“In the last few months this has had a strong, positive impact on global urea pricing, outweighing the negative effect of increased capacity elsewhere,” Yara chief executive officer Svein Tore Holsether told analysts during a presentation of the company’s fourth quarter results.
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However, he said the positive price momentum could eventually be derailed by capacity additions outside the Chinese market.
Countries such as the United States, Algeria and Iran are adding an estimated eight million tonnes of urea production capacity this year.
That is a lot of extra capacity, considering urea consumption typically grows at a pace of three million tonnes per year.
“There is a risk that this incremental capacity may weigh on global urea prices later this year,” said Holsether.
The capacity additions are expected to peak in 2017 and then fall to 5.3 million tonnes in 2018, 5.7 million tonnes in 2019 and 3.8 million tonnes in 2020, which are all still in excess of the usual annual increase in consumption.
Agrium president Charles Magro offered a similar nitrogen fertilizer price outlook during the company’s latest quarterly conference call with investment analysts.
“Indications are that the market will remain relatively tight at least through the spring season despite new nitrogen capacity coming on stream in the U.S.,” he said.
“Once the spring season is complete, we do see the potential for seasonal weakness in nitrogen prices.”
Urea prices for much of 2016 were below China’s cost of production, but by January 2017 they had risen back to just above the cost of production, which may encourage an increase in capacity utilization.
Agrium is forecasting six to eight million tonnes of Chinese urea exports in 2017, down from 8.9 million tonnes the previous year and 13.8 million tonnes in 2015.
That is why the company is forecasting continued firmness in urea pricing for the first half of the year despite increased production capacity elsewhere around the world.
David Asbridge, president of NPK Fertilizer Advisory Service, said the two fertilizer executives are bang on with their forecasts.
“That’s what we’re looking for, too,” he said.
The U.S. Midwest wholesale price of urea has risen to about US$288 per short ton from $207 last July. He expects it to remain at that level until summer, when it will fall to $240 to $245 per ton.
U.S. imports of urea are down one million tonnes since July 1, 2016. Buyers were waiting for three new large-scale U.S. production facilities to start operating.
Two of the three are up and running, but the Iowa Fertilizer Company project is behind schedule. It was supposed to be operating last year, but the new start-up date is the end of February. A further run-up in urea prices could occur if that doesn’t happen.
Asbridge said the U.S. will import four to 4.5 million tonnes of urea a year once all the new plants are running at full capacity, which is down from 7 to 7.5 million tonnes.
Agrium expects nitrogen fertilizer demand in the U.S. this year to be similar to last year despite its forecast for as little as 90 million acres of corn, down from 94 million acres last year. Corn crops are heavy users of nitrogen.
The company is forecasting stronger than usual spring demand in Western Canada because of the fall season being cut short by the early snowfall.
