Global Nitrogen Market: 6 Factors to Watch in 2019
Two years ago CF Industries’ Bert Frost wrote on CropLife.com that “demand will absorb excess supply, and the global supply and demand balance for nitrogen should start to resolve beginning in 2018,” and that “we expect prices to begin to rise in 2018.”
This was not a prediction made lightly, Frost writes once again in his annual analysis of the global nitrogen market. For several years the global nitrogen market has been in a state of transformation due to major nitrogen capacity additions through 2016, including in North America. During this time, urea prices reached lows not seen in nearly 20 years, and pricing for all products was volatile. As a result, producers, traders, wholesalers, and retailers had to adapt to new global trade flows — with urea imports into the U.S. during 2018 being 47% below the five-year average — and pricing patterns contrary to historical norms.
But global nitrogen fundamentals always eventually play out. Demand for nitrogen has continued to grow, driven by increased industrial uses and higher agricultural demand in places like South America and Asia. New capacity additions have slowed. And as we saw in the second half of 2018, global nitrogen prices did begin to rise and largely maintain those higher levels.
Nitrogen remains a dynamic market whose prices are driven up or down by a number of factors. As you look ahead to 2019, these are the six you should watch most closely:
1. Energy Prices in Europe, Asia
Energy — whether natural gas or coal — is the largest input cost in nitrogen manufacturing. A significant driver of higher global nitrogen prices in 2018 was the increase in the cost of natural gas in Europe and liquefied natural gas (LNG) in Asia. Near the peak of global urea prices in 2018, the price of natural gas per MMBtu at the Dutch TTF natural gas hub was 63% higher in September 2018 compared to September 2017. The Asian LNG spot price was 66% higher in September 2018 than the same time the year before. As a result, nitrogen facilities in Asia that rely on imported natural gas (Bangladesh, India, and Pakistan) and in Europe (Croatia, Estonia, Hungary, Lithuania, Netherlands, Romania, and Ukraine) required higher prices to operate, and some curtailed production.