Global Fertilizer Outlook - 1

OMAHA (DTN) -- With world crop prices on the rise, fertilizer should be more affordable in 2021 and farmers could be willing to spend more money for inputs, according to fertilizer analysts.

While new global nitrogen supply projects are being pushed back into next year because of the COVID-19 pandemic, nitrogen supply and demand appear to be well-balanced.

Presentations were made on the short-term market outlook at the recent 2020 T3 Virtual Fertilizer Conference -- Trends, Technology and Transportation, put on by The Fertilizer Institute (TFI). This new conference replaced TFI's Fertilizer Outlook and Technology Conference, as well as the North America Fertilizer Transportation Conference.

AG AVOIDS RECESSION

GreenMarkets Research Director Alexis Maxwell gave the nitrogen market outlook. Despite the deepest recession since World War II caused by the COVID-19 pandemic, this sharp decline did not translate across to agricultural commodities, she said.

All major agricultural commodities rebounded from the second quarter in 2020 and are now at about 2019 price levels. This additional cash flow for fall fertilizer decisions should allow farmers to increase spending on ag chemicals in 2021, she said.

A nearly 30% rise in crop prices has allowed crop nutrients to become more affordable. More affordable fertilizer prices began in 2018, Maxwell said.

The nutrient affordability ratio is a weighted average of futures crop prices against global fertilizer prices.

"More affordable crop nutrients and better corn prices hint at increased agricultural chemical spending in 2021," Maxwell said.

WORLD N PRICES LOWER

Global nitrogen fertilizer prices year-to-date are trading lower than last year's average. Lower natural gas prices, COVID-19 shutdowns, industrial shutdowns affecting ammonia and urea demand, and global oversupply of UAN have all combined to factor into these lower prices, she said.

Global natural gas prices could improve some in 2021, she added. However, expectations should be tempered as the supply glut lingers, she said.

The input cost curve for nitrogen producers is still expected to be mainly lower for 2020 due to halving the price of oil, declining natural gas prices and a rise in Chinese coal prices. Longer term, this situation should increase production, which saw a decrease in recent years.

A good example is the Ukraine, which will export about 1.5 million metric tons (mmt) of urea this year. This is an increase of about 1 mmt from last year.

Romania is also set to resume some previously high cost urea production after several years of almost no production, she said.

"Next year we expect around 4 mmt of urea capacity to come online in lower-cost regions like Africa and India, so Chinese prices and exports will have less of an impact on setting the global annual average if all plants come online in 2021," she said.

LITTLE ADDITIONS IN 2020

Maxwell said capacity growth did not see much new additions in 2020 because of the pandemic. New additions that were expected in 2020 will mostly likely be pushed back into 2021.

Green Markets is estimating ammonia capacity growth at about 2 mmt and urea capacity additions of 5 mmt after 2020, which saw almost no additions.

Two new, major urea plants will come online in 2021, Maxwell said. Nigeria and India are both set to see plants add an additional 1.3 mmt tons to each country's capacity. Both projects have been delayed and could be finished in Q1 2021, she said.

Additional capacity in 2022 will come from India plants, as well as further expansions in Nigeria and Russia. Supply growth slows in 2023 and 2024 at levels below annual urea demand growth, she said.

INDIA PUSHES N SUPPLY GROWTH

However, supply growth will be most evident in India in the next three to five years as the nation pushes toward self-sufficiency in many industries, Maxwell said.

At the top of India's priority list for fertilizer is opening seven urea producing operations. These new projects are expected to add 8.8 mmt of urea capacity in India.

"New production is aimed at reducing India's urea import dependence; last year, the value of imports was over $3 billion and is expected to exceed that level this year," Maxwell said.

India needs between 9 mmt to 11 mmt of urea annually. Even with new domestic production in the coming years, expect the nation to remain a nitrogen importer, she said.

Ammonia imports demand took a hit in Q2 of 2020 with COVID-19 shutdowns, but ramped back up through the summer, thanks to increased industrial demand. China, Morocco and South Korea claim 20% of all global ammonia imports and China and Morocco have seen some import demand recovery, she noted.

Brazil and India have been driving the global urea market in 2020. Brazilian urea imports are forecasted to be at 6.5 mmt for 2020 while India urea imports are forecasted to be near 10.5 mmt.

Meanwhile, China will ramp up urea production when the price is right, she said.

With urea prices rising because of increased buying from India, Chinese operating rates began to climb. Prices rose in June and July and Chinese urea manufacturers sent product to ports and exported in September.

Last year, China exported 4.9 mmt of urea, while this year they are tracking down about 9% of last year's levels through September.

U.S. STILL DEPENDS ON N IMPORTS

Maxwell said despite new nitrogen production capacity in recent years, the U.S. is expected to remain dependent in importing nitrogen through the 5-year outlook. This is driven primary by the acreage forecast of nearly 250 million acres of crops each year.

U.S. ammonia export trade will continue to grow, primarily in the off-season, while imports continue to decline. The U.S. urea market is similar to ammonia, with less imports and more exports.

The U.S. UAN market is at a contrast to the ammonia and urea markets, she noted. U.S. exports have declined during 2020 while imports also show signs of decline in 2021.

Russ Quinn can be reached at russ.quinn@dtn.com

Follow him on Twitter @RussQuinnDTN

(c) Copyright 2020 DTN, LLC. All rights reserved.