DTN Fertilizer Outlook: Global Nitrogen Market Faces 2-3 Year Deficit

Anhydrous Application. Photo by Ross Birkenfeld

The global nitrogen market could face a deficit in the next two to three years until more world capacity can come into the market, according to a speaker at the 2018 Fertilizer Outlook and Technology Conference recently in Jacksonville, Florida.

Alistair Wallace, a fertilizer analyst for Integer Research Ltd. based in London, told attendees that based on pure capacity and demand forecast, the nitrogen market looks oversupplied. However, other factors such as plant closures, Chinese policy changes and United States sanctions on Iran could make the nitrogen market much tighter.

GLOBAL N DEMAND GROWING

Wallace said global urea demand is set to continue to increase. From 2003 to 2013, world demand increased about 3.7% each year. From 2014 to 2023, demand is projected to increase but at a lower rate, closer to 1.5%, he said.

World urea demand has grown from just over 100 million metric tons (mmt) in 2003 to over 150 mmt in 2018, he said. However, the forecast demand for urea is closer to 160 mmt by 2023.

Wallace said the demand growth for urea has slowed in recent years for many reasons. This is predicted to continue for coming years. The two main reasons are events happening in China and India.

Many Chinese nitrogen manufacturers are idling nitrogen plants to meet changing environmental regulations to limit emissions from these facilities. Because of these issues, Wallace said China’s effective nitrogen capacity is currently estimated at 62.5 mmt/year and it could fall closer to 40 mmt.

“Further regulations are also expected there,” Wallace said.

India is set to curb its dependence on urea consumption. The government has the ability to limit urea use in the country and is pushing for less dependence on imports, he said.

Indian urea consumption had been closer to 35 mmt last year, but the forecast for 2018 is closer to 30 mmt to 30.5 mmt, he said.

“The lost engine of growth are policy decisions in places like China and India,” he said.

While some demand may be lost to slowing fertilizer demand, Wallace said urea could see increased usage in the form of Diesel Exhaust Fluid (DEF). Demand is expected to rise for DEF by 3.4% per year from 2018 to 2023.

In 2016, just over 2 mmt of DEF was produced and this increased to about 3.5 mmt in 2018. The DEF demand number could skyrocket to 7.0 mmt by 2023.

CAPACITY EXPANSION LIMITED

Nitrogen expansion in North America looks to be limited after a building boom in recent years.

However, Wallace said some nitrogen expansion is set to be operational in the coming years. There are plants, either new or redone facilities, expected in central Asia, Russia, East Europe, Africa and the Middle East.

Wallace said U.S.’ sanctions on Iran have limited building activities there; there are two plants there which could be built, but only one is close enough to being built to include in the country’s estimates.

Meanwhile, India is set to increase domestic production significantly and replace almost all of its import requirements. The nation has three projects, which Wallace classified as a firm commit, and four other projects in the speculative category.

The country wants to eliminate all dependence on nitrogen imports by 2023, he said. However, India’s nitrogen manufacturers are running into an issue regarding access to natural gas to produce nitrogen fertilizers.

“If all seven plants are built, it could be a game changer for India,” Wallace said.

With slower demand, the global nitrogen capacity forecast should be well supplied over the next five years, even as it averages less than 3.5 mmt per year of additions, he said.

Wallace said many governments across the world are driving the wave of investments into nitrogen manufacturing facilities. They are doing this by lowering the cost of capital needed to invest into the nitrogen industry, he said.

N WILD CARD

The Iranian sanctions by the U.S. could be the potential wildcard in the world nitrogen market, he said. The sanctions appear to limit nitrogen facilities in Iran, but also affects who can buy nitrogen from Iran on the world market.

Wallace said India can’t buy from Iran because of the sanctions so it has to turn to other sources like China, the Ukraine or the United Arab Emirates (UAE). If this downside scenario plays out regarding this situation, nearly 3 mmt of urea will have to be replaced in the market.

“Spare capacity is limited,” Wallace said.

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

Follow Russ Quinn on Twitter @RussQuinnDTN

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