The world’s largest fertilizer manufacturer and retailer is bullish on prices for 2018.
Nutrien Ltd., which was formed by the merger of PotashCorp and Agrium Inc., said fertilizer markets have turned a corner after years of struggling with oversupply.
“The fundamentals for our business have improved, in particular the outlook for potash and nitrogen markets,” president Chuck Magro said during a conference call announcing the company’s fourth quarter 2017 results.
Crop nutrient prices remain affordable, which is expected to lead to robust demand for the products in the upcoming year.
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Global potash demand reached a record 64 million tonnes in 2017, up six percent from the previous year. Nutrien expects it could climb as high as 66 million tonnes in 2018.
Magro said nitrogen fertilizer prices have firmed with benchmark prices at the start of 2018 up 15 to 40 percent over the lows during the fourth quarter of 2017.
That is partly because of the curtailing of Chinese production caused by government regulation, higher natural gas prices and the continued strength in coal prices.
He views the Chinese situation as a structural change that will lead to reduced Chinese urea exports in the future.
North American imports of urea were down by 50 percent, or one million tonnes, in the second half of 2017, more than offsetting the increase in domestic production during that period.
Magro said North American demand for nitrogen fertilizer is expected to be stable in 2018, but with the reduced imports he expects tight supply of the product between now and spring.
“Overall we anticipate an improved nitrogen market compared to 2017 based on the expectations for higher global energy prices, lower Chinese exports and demand growth absorbing recent capacity additions,” he said.
His forecast is at odds with a recent report produced by Credit Suisse, a financial services company.
It is pessimistic about nitrogen fertilizer prices for the upcoming year because production capacity that was supposed to be operational in 2017 has been rolled into 2018.
Credit Suisse is forecasting 4.76 million tonnes of additional urea supply hitting the market in 2018, which is more than the 4.6 million tonnes of urea that China exported in 2017.
“Put simply, market headwinds many were anticipating in 2017 appear to be being pushed off by roughly a year, delaying any anticipated recovery,” stated the report.
Jason Newton, Nutrien’s director of market research, expects China to export three to four million tonnes of urea this year, which would be a 13 to 35 percent drop from last year.
Meanwhile, India isn’t buying yet despite depleted urea inventories that are down an estimated 500,000 to 600,000 tonnes from the previous year.
“I’m a little bit surprised that we haven’t seen India come back in,” said Newton.
Magro said one reason potash demand is “robust” is that Brazil continues to move pastureland into cropland.
Another reason is that governments in India and China are starting to mandate soil tests, and the results have been “worrisome.”
“Finally, they’re starting to see that if they don’t change the soil health dynamics it could have long-lasting implications,” he said.
One investment analyst asked if the company is considering permanently closing some of its smaller, less efficient potash mines in Saskatchewan and New Brunswick as it increases production at Rocanville, Sask., and other low cost mines.
Raef Sully, Nutrien’s president of potash, said that is definitely under consideration.
“All of those things are on the table. We’re certainly looking at those options,” he said.
Production had already been curtailed at the company’s Cory, Allan and Lanigan mines before the formation of Nutrien.
However, at least in the short term the company needs to keep all six of its Saskatchewan mines running.
Mike Frank, Nutrien’s president of retail, provided a 2018 price outlook for crop protection products.
He said there will generally be price inflation, but it will be “lumpy” with some product prices increasing five to 10 percent while others will be flat.
Overall, he estimates there will be a two to three percent increase in crop protection products, while seed prices will remain flat.
