Urea fertilizer prices are starting to firm after years of weakness.
Chuck Magro, president of Agrium Inc., told investment analysts during a conference call announcing third quarter results that the tide is starting to shift.
“Nitrogen prices have stabilized, and we have seen some recent global tightening of supply-demand, which has had a positive impact on pricing, driven by stronger Indian imports combined with lower export availability out of China,” he said.
The reduction in Chinese exports is due to lower global prices and an almost 60 percent increase in Chinese bituminous coal prices. Chinese plants use coal instead of natural gas to make nitrogen fertilizer.
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China purchased just over 20 million tonnes of wheat, corn, barley and sorghum last year, that is well below the 60 million tonnes purchased in 2021-22.
U.S. offshore imports of urea are down 65 percent in the 2016-17 fertilizer year that started on July 1.
The reduced imports have been offset by increased U.S. urea production, but the 60,000 tonnes per month in additional domestic production pales in comparison to the one million tonne reduction in third quarter imports.
David Asbridge, a partner in NPK Fertilizer Advisory, sometimes has a different take on market conditions than the big manufacturers, but in this case he does not.
“What they are saying is exactly right,” he said.
China has exported about 13.5 million tonnes of urea in each of the last two calendar years, but Asbridge estimates the country will ship only 9.5 million tonnes of product this year.
“That’s four million tonnes of urea that has been taken out of the balance,” he said.
Asbridge said the tightening of urea supply is a surprise. Analysts thought supplies would rise because of three new U.S. manufacturing plants that were supposed to start production in 2016.
CF Industries has opened its plant in Donaldsonville, Louisiana, but its facility in Port Neal, Iowa, is still under construction.
The Iowa Fertilizer Co. plant in Wever County has experienced multiple delays and is now scheduled to open in February 2017.
The U.S. Midwest wholesale price for urea has already started to rise after years of tumbling. It has climbed to US$230 per short ton, up from $207 in July. Asbridge said it could climb as much as another $50 per tonne if the Iowa Fertilizer Co. project is further delayed.
China would likely start exporting product again if prices climbed to that level.
The current U.S. Gulf urea price is below China’s cost of production, especially with producers facing rising coal costs.
NPK Fertilizer Advisory estimates 10 to 12 million tonnes of urea capacity has been idled in China, but it could come back into production if the price is right.
He expects little increase in urea prices during the winter because the fall application season is coming to an end in the United States, and demand is also slowing in Brazil and India.
Asbridge said summer and winter are typically the best times for farmers to negotiate fertilizer prices with retailers.
