Urea Market - April 2023 Review and Insight
Posted on Monday, April 3, 2023
Before trying to predict what the future might hold, it is a good idea to spend some time understanding the tumultuous past couple of years in the fertilizer market. There were a lot of major weather and geopolitical events which we will explore, in addition to dozens of smaller events that caused urea prices to soar.In early 2020 prior to Covid, fertilizer prices were typically stable. When the Covid epidemic started, it prevented people from traveling and deterred people from congested public places. As a result, people opted to stay home more and spent time taking care of their properties, golfed more often and utilized more outdoor green spaces. Fertilizer sales started to boom.In February of 2021 Texas was hit with a historic winter storm Uri. Unfortunately, the south was not prepared for the substantial damages the winter freeze laid upon Texas. Pipes froze, properties were flooded and in the crossfire were chemical plants that produced ingredients for fertilizer coatings and fertilizer blending facilities. Later that same year Hurricane Ida hit in the summer. Ida was one of the costliest hurricanes to hit the United States resulting in $75 billion in damage as it plowed through the gulf and into Louisiana as a Category 4 storm. In its wake it left a million homes and businesses without electricity. Fertilizer plants like CF Nitrogen and Mosaic suffered plant shutdowns and the Mississippi River saw massive delays moving products and raw materials up the river. There were force majeures implemented and raw ingredients like DAP and urea started to spike.Fast forward to the winter of 2021 where several global factors started influencing energy, gas, and fertilizer prices. In the United Kingdom, where over 25% of power comes from wind energy, they strangely suffered a lack of wind as winter approached. Later this same winter, the threat of a Russian invasion into the Ukraine was making headlines. Natural gas prices started to increase (see chart 1), doubling in a short period. Gas is vital to the fertilizer industry because it is not only used to run a fertilizer plant but also, to make urea. Natural gas is first turned into Ammonia, which is then made into urea – the most commonly used nitrogen source in the world!In February of 2022, the Russia invasion into Ukraine becomes a reality, sending natural gas and most energy prices skyrocketing (see chart 1.)! Sanctions on Russia and allies like Belarus were put in place, who when combined, make up 40% of the global Potash supply. At the time, Russia was producing 6% of global urea and typically exporting around 8 mm metric tons which is just over 14% of the global urea exports. Russia also produced around 10% of the global ammonia, and prior to the Ukraine invasion consistently exported just under 5 mm metric tons of ammonia which represents about 1/3 of the total vessel anomia trade. Russia also accounts for 50% of the Ammonium Nitrate and was the 5th largest producer of processed phosphates. Ukraine also produced urea and ammonia and is considered the breadbasket of Europe, so grain prices jumped as well.
At the same time, there was a lot of uncertainty in other parts of the world when it came to fertilizer materials. China had been undergoing the “great China export re-think” recognizing that it did not make sense to operate inefficient plants that used a lot of fossil fuels and polluted the atmosphere, especially with another Olympics heading that way in 2022. China virtually stopped all exports of urea which had impacts on global supplies with the Russian invasion of the Ukraine.The summer of 2022 saw skyrocketing energy prices and in turn fertilizer prices followed higher. Especially in Europe, energy prices in some countries tripled or more which led to plant production reductions or plant shutdowns, reducing market capacity and supply overseas. With higher prices overseas, North American producers were eager to sell overseas for higher profits, reducing supplies in the US.Throughout the fall of 2022 the Turf and Ornamental industry, as well as Ag, were forced to buy urea and other fertilizer materials at record high prices to fulfill demand and to combat the uncertainty and threats of limited supply. Then as Covid restrictions waned and testing stopped around the globe, people started to travel and vacation more. Money that was spent to beautify homes, was now spent on high-cost plane tickets during inflationary times. With inflation came reductions in fertilizer usage and “dumbing down” fertilizer blends to offset costs, using less technology and more fillers trying to cheapen the cost of a bag. With fertilizer prices still high, it was still a mystery to know when pricing would come back to “normal”.Experts around the globe continued to predict higher costs, last fall the industry was predicting it would see $700+ a ton for urea today. However, demand slowed, the threat of supply issues began to fade. The winter of 2022/23 was extremely mild across Europe and North America which reduced the need for gas, and energy, and prices began to soften. As prices fell, buyers took note and slowed their purchases. As with any typical supply and demand model, as demand faded prices began to drop as well.Unfortunately, at this time the supply channel was still filled with high-cost urea and other substrates. With a stale mate between buyers and sellers, flushing out the high-cost products was very slow over late 2022 and into the first quarter of 2023.So, not that you know where the fertilizer market came from…now is the hard part, where is the fertilizer market going?Today, NOLA urea is at a low range and futures predict May to fluctuate slightly but generally stay stable and soft all spring. Across the country it feels like there is pent up demand, waiting for the rock bottom price to rear its final look at spring. It’s uncertain when or IF it will ultimately come, which puts the market at a stale mate. Sellers trying to relieve some higher-cost material and buyers waiting for the lowest price possible.Overview of Urea Market – News and Insight- China seems to have eased their export restrictions, but domestically they’re still roughly $100 higher than the international market, so domestic producers are selling urea internally to make those extra profits
- Indian stockpiles are still plentiful according to reports, so their most recent tender (March 3) was for less tons than normal, keeping prices softer and keeping China from exporting due to their own higher domestic pricing
- European feedstock and natural gas, which has fallen to a 19-month low, have eased, softening urea prices
- US Henry Hub gas prices fell to their lowest since October 2020 with warmer-than-average winter weather and strong production
Current Spring Urea Forecast: Recent weak demands have helped softened urea prices. It is expected to fluctuate slightly ($25-50 a ton) but stay relatively stable throughout the spring months
Key Factors to Look out for this Spring- European Natural Gas – if gas prices move higher, expect urea prices to follow
- Northern hemisphere moves from winter to spring - normal demand period for farmers planting corn and wheat – watch planting reports if weather prevents farmers from getting into fields – less demand, lower prices
- USDA forecasts higher corn production for the 2023-24 crop year with 91 million acres planted and a record yield of 181.5 bushels per acre, producing a projected 15.09-billion-bushel crop, about 10% larger than a year ago. If realized, it would be the second-largest crop on record behind the 2016-17 crop year, which could provide pricing support on strong fertilizer demand
- Banking interest rates – recent bank failures, bond rates and inflation could tighten credit and a slowdown in lending which could hamper purchasing capabilities