The world’s largest urea exporter has backed out of the market in a dramatic fashion, and that is supporting prices, says CF Industries.
China exported 4.7 million tonnes of the product in 2017, which is down 65 percent from the 13 million tonnes it shipped in 2015.
“The removal of more than eight million metric tonnes of Chinese urea from the global marketplace has helped offset some of the recent increases in capacity elsewhere,” Bert Frost, CF’s senior vice-president of sales, said during a conference call announcing the company’s fourth quarter 2017 results.
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The company expects China’s net urea exports to drop even further in 2018 because of continued government enforcement of environmental regulations.
Anthony Will, CF’s chief executive officer, believes plants that have been shut down due to environmental regulations will not be brought back into production.
“The cost associated with the scrubbing and elimination of the emissions is so high, and given where the product is trading on a global basis, it just doesn’t make any sense,” he said.
Over the past couple of years 19 plants in China and one in Kuwait have been shut down and are expected to be permanently closed. Those plants have a combined production capacity of 7.22 million tonnes.
Another 10 Chinese plants with 3.21 million tonnes of capacity have been temporarily shut down.
Vastly reduced Chinese exports combined with increased imports into India and Brazil have created a firmer global nitrogen market in 2018 compared to last year.
North American prices have also been bolstered by reduced imports. Urea imports declined 37 percent and UAN imports fell 24 percent in the second half of 2017 compared to the previous year.
CF expects the usual third quarter price slump, but Will said urea barge prices at New Orleans will not be dropping back down to last year’s lows of $160 per tonne, where they were at for about four months.
“(It is) our belief that the lows don’t get anywhere close to where they were last year,” said Will.
China’s environmental crackdown on coal manufacturing facilities is one of the main reasons why China’s urea plants have been shuttered. Coal is the energy source for many of the country’s fertilizer plants.
“There has definitely been some restrictions on the number of operating days, and the number of mines that have closed is an astronomical number,” said Will.
Coal prices are up 57 percent since 2016 because of the shrinking supply.
“That is a dramatic increase in terms of the cost structure there, and we really don’t see that turning around and going the other direction,” he said.
Will said other factors behind the reduction in China’s urea production include an unfavourable currency exchange rate and the elimination of subsidies for chemical plants and on rail and electricity.
