16
| WORLD FERTILIZER |
NOVEMBER 2016
Association (IFA). Namely, the Middle East and
North Africa (MENA) region, the US, Russia and Indonesia
will contribute to most of the world’s additional ammonia
production capacity over the period, with more than 70%
of that ammonia capacity being directed to urea
production. Although China, the world’s nitrogen leader,
constitutes the notable exception; as the country’s
capacity growth is slowing, it will remain a dominant force
on the global market (Figure 1). In contrast, the EU and
India will underperform in terms of fertilizer production as
both regions are less endowed in natural gas compared to
other major producers. Indeed, EU nitrogen fertilizer
production has one of the highest costs in the world,
largely due to elevated natural gas prices.
Natural gas: primary input for nitrogen
fertilizers
The prices of natural gas and energy are the drivers of
nitrogen fertilizer production, as natural gas and energy are
the key inputs to the production process. These prices
determine the cost of production for ammonia and urea,
as well as the optimal location for investment in
additional production capacity. According to industry
estimates, gas costs account for more than 90% of the
ammonia production costs at a typical plant. Moreover,
gas and energy costs make up almost 85% of the urea
production costs through two channels: the cost of
ammonia and the cost of energy required to produce urea.
The price of natural gas is generally cheapest in the MENA
region, followed by the US and Russia, and finally Europe
and Asia – although prices can differ widely between
countries that are part of the same region. A large share of
Chinese urea production facilities rely on coal as a source
of energy rather than gas, which reduces the sensitivity of
Chinese output to gas prices and increases its
competitiveness.
Global demand: China and India to see
strongest consumption growth
BMI Research expects China and India, currently the
world’s first and second largest consumers respectively, to
see the strongest volume growth in nitrogen fertilizer
consumption out to 2020. This is due to China and India
seeing solid growth in agricultural production over the
next five years, while other large producers will face a
challenging outlook over the period. A key implication of
these views is that nitrogen consumption will be
increasingly concentrated as China and India are already
the world’s largest consumers.
Looking at specific products within the nitrogen
complex, it appears that urea dominates the world market
with more than 50% of total nitrogen-based fertilizer
demand as of 2011. The research group expect this to remain
the case out to 2020 as the dominance of urea is due to the
preference of farmers in emerging markets for urea over
other alternatives. As of 2011, urea made up about 51% of
Brazil’s nitrogen fertilizer consumption, a share which rose
to 67% in China and 78% in India. In contrast, UAN and
ammonia were the most favoured by US farmers, while
nitrates accounted for about 43% of European nitrogen
consumption.
Figure 1.
China: uncontested world nitrogen leader. LHC: 2013 nitrogen fertilizer production (million nutrient tonnes) RHC:
2012 ammonia and urea production (million tonnes).
Source: IFA.
Note: Ammonia is an input for urea production and a share of urea production is used as nitrogen fertilizer, while the
remainder serves as an input in the production of other fertilizers.
Figure 2.
Price linkages between nitrogen fertilizers and
natural gas. Select prices – green market US Gulf NOLA
fertilizer prices (US$/short t) and Generic Front-Month
Henry Hub natural gas futures price (US$/million BTU),
weekly data.
Source: Green Market, Bloomberg.
0
5
10
15
20
25
30
35
40
China
India
EU
MENA
USA
Russia
Canada
Indonesia
Pakistan
Ukraine
Other
0
10
20
30
40
50
60
70
China
Russia
India
USA
Indonesia
Trinidad
Ukraine
Canada
Saudi Arabia
Egypt
Ammonia Urea
Date
AN
Urea
UAN Natural Gas (RHS)
Jun-16
195
180
180 2.398
May-16
195
189
190 2.169
nat gas at USD/mmbtu
May-16
195
200
195 2.062
May-16
200
212
195 2.096
Fert prices USD/ST
May-16
205
225
210 2.101
Green Market FerDlizer Ammonium Nitrate US Gulf NOLA Spot Price (R1)
Gre n Market FerDl zer UREA US Gulf NOLA Granular Spot Price (R1)
Apr-16
205
232
212 2.178
Apr-16
205
238
205
2.14
Apr-16
205
255
205 1.902
Apr-16
205
248
210
1.99
Apr-16
205
257
205 1.956
Mar-16
210
255
205 1.806
Mar-16
210
265
195 1.907
Mar-16
215
274
190 1.822
Mar-16
215
270
190 1.666
Feb-16
215
265
180 1.791
Feb-16
215
264
170 1.804
Feb-16
215
245
165 1.966
Feb-16
215
205
160 2.063
Jan-16
215
200
163 2.298
Jan-16
215
202
163 2.139
Jan-16
210
224
165
2.1
Jan-16
215
220
170 2.472
Dec-15
215
230
175 2.029
Dec-15
215
237
175 1.767
Dec-15
215
235
180
1.99
Dec-15
215
232
185 2.186
Nov-15
215
240
185 2.212
Nov-15
225
247
185 2.145
Nov-15
238
249
185 2.361
Nov-15
238
253
185 2.371
Oct-15
238
250
185 2.321
Oct-15
240
256
190 2.286
Oct-15
240
259
195
2.43
Oct-15
240
260
200 2.502
Oct-15
245
260
202 2.451
Sep-15
245
275
205 2.564
Sep-15
255
273
205 2.605
Sep-15
260
275
205 2.693
Sep-15
260
280
205 2.655
Aug-15
260
284
205 2.715
Aug-15
260
294
205 2.676
Aug-15
260
284
210 2.801
Aug-15
260
284
210 2.798
Jul-15
260
290
215 2.716
Jul-15
260
285
215 2.776
Jul-15
262
310
215
2.87
Jul-15
262
352
218
2.77
Jul-15
265
360
220 2.822
Jun-15
265
380
210 2.773
Jun-15
265
370
210 2.816
Jun-15
270
350
230
2.75
1
2
3
4
5
6
7
150
200
250
300
350
400
450
500
AN
Urea
UAN
Natural Gas (RHS)
