Changing Dynamics of Urea Trade in the Fertiliser Sector

Changing Dynamics of Urea Trade in the Fertiliser Sector

This week saw the conclusion of an Indian Urea tender, which saw 18 offers received with total tonnages amounting to 1.65mil Mts, now this may not seem strange to people on the outside but to people within the industry one notable fact was prevalent – Chinese Urea no longer plays any part in international arena.  Why is this? Simple China has the world’s highest cost of production (varying from USD 180-250/Mt FOB) whilst the prices over the last years have been well above the cost price of production enabling China to export over 14 mil Mts in one year.  Now the prices are hurting the China producers


China Urea capacity currently stands at around 75 Million Mts, approximately 30 Million Mts has shut down permanently or is on plant turnaround leaving 45 Million Mts.  Present operating rates at the factory are around 58% which means that 26.1 Million Mts can be produced annually.  China domestic demand is approx. 41 Million Mts and industrial usage could be as high as 10 Million Mts.  As you can see the math does not add up, China is going to be running well short of Urea.


What affect does this have on the markets, seen as China for many years has been a net exporter of Urea we shall see China importing urea in the not too distant future.  If coal prices decrease then we shall see China export 3.5-4Million Mts to neighboring countries next year and import around 2-300kt.


My belief over the next years is that trade will become very regionalised, with the likes of India and US markets looking to increase their domestic production to become less reliant on international tonnes.  New factories coming on stream in Bolivia, Nigeria, Indonesia, Malaysia, Iran, AG etc will increase supply massively this will keep market prices depressed.  Iran will look after the India market, the AG will defend its market share in Brazil/Thailand/Australia etc from others attempting to gain market share in the respective territories, The Red Sea will look after Europe.  With all these markets now catered for it means that the world can do without the surplus Chinese tonnes and leave China to concentrate on its own domestic market.  On a side note we have seen OPZ recently decide to stop urea production due its very high cost of production.


Whilst the AG produces Urea from very cheap gas (Saudi USD 1.25 mmbtu for example, source: WORLD FERTILIZER, A Tale of Two Fortunes: The MENA Nitrogen market) and China produces from mainly coal – the outlook for the China Urea export market does not look promising.

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