After the significant drop in 2008, the demand for fertilizers began to rebound toward the end of 2009. Food demand remained strong throughout the year.
Fertilizer market conditions
Global fertilizer markets were supply-driven for most of 2009, with production curtailments required for all nutrients, but improved strongly for both nitrogen and phosphates towards the end of the year. The financial crisis led to increased focus on working capital and risk management, resulting in inventory drawdown and just-in-time fertilizer buying by farmers and distributors. Despite the economic turmoil, food demand growth has remained strong. Food production in 2009 exceeded demand slightly, due to favorable weather conditions.
Global urea prices were relatively stable during 2009, but increased towards the end of the year. First-half 2009 import demand was lower than a year earlier, and prices were set primarily by production costs in Ukraine and some other countries where gas costs are linked to oil. Demand started to pick up from the third quarter, but Chinese and subsequently Ukrainian exports covered the increase in demand and limited price effects. At the end of 2009, urea capacity outside China ran at close to full production.
The ammonia market was depressed throughout 2009, suffering from reduced demand in the two most important factors for global ammonia trade: industrial demand and phosphate fertilizer production. Demand improved during the second half of the year, but only to a level where some Ukrainian exports became viable. Even at the end of 2009, Ukrainian export capacity ran at low rates.
Demand for phosphate fertilizer was severely hit by the financial crisis. Phosphate is stored in the soil, and given a healthy nutrient level, application can be skipped for a season without significant loss of yields. As phosphate producers were quick to adjust production to lower demand, the market tightened considerably towards year-end when demand picked up and supply flexibility was limited.
Phosphate rock and phosphoric acid prices followed the price of DAP, with low upgrading margins for non-integrated producers. Key rock exporters reduced their volumes, and this created a floor price. Phosphate rock demand improved towards the end of the year, leading to higher upgrading margins and increased trade.
Potash demand was low in 2009, as farmers reduced application due to high prices, and buyers anticipating price declines. Prices declined throughout the year, but not sufficiently to generate a rebound in demand in 2009.
|Urea prilled (fob Black Sea)
|Ammonia (fob Black Sea)
|AN (CIF France)
|CAN (CIF Germany)
|Phosphate rock (fob Morocco)
|Oil Brent blend spot
|Low-sulphur fuel oil (LSFO)
|US gas (Henry Hub)
|European gas (Zeebrugge)
|Source: The Market, Fertilizer Week, World Bank and Platts.
Regional market developments
Nitrogen fertilizer sales in Western Europe were down eleven percent from 2008, due to declining consumption during the 2008/2009 season and a cautious start to the 2009/2010 season. Imports were down by seven percent, gaining some market share due to relatively strong imports early in the year. Demand and prices got a strong boost from the tightening global urea balance towards the end of 2009.
Similarly, US nitrogen deliveries were down by an estimated 13 percent on 2008, but imports dropped by 24 percent. This data includes nitrogen for industrial applications.
Urea sales in India were down three percent, seasonally (April-December), following lower sales earlier in 2009 due to a poor monsoon. Domestic production was up five percent, mainly due to revamping of plants and higher regularity in natural gas supply.
China exported 3.3 million tons of urea in 2009, compared with 4.3 million tons the year before, declining primarily due to lower export prices.
Exports did not increase dramatically when global urea prices picked up towards the end of 2009, since Chinese domestic coal prices also increased amid curtailments of coal and gas supplies to industry.
Brazil imported 1.9 million tons in 2009, down from 2.2 million tons in 2008, with particularly low imports early in the year.
Industrial market conditions
The market for environmental solutions is largely driven by stricter environmental regulations, particularly regarding emissions standards for vehicles. Even more stringent legislation is on its way in several of Yara’s major markets, not least Europe and North America, but also in Asia and South America. In 2009, Yara established a new AdBlue production line at Ferrara, Italy, positioning Yara to meet growing demand in Southern Europe.
Asia is another AdBlue growth market, and is expected to become one of the world’s largest given its great demographic and economic significance. New emissions standards are being implemented in several countries, including China and India.
Entering the Asian market, Yara has established a JV company, Purico, with the leading Chinese chemical company, Sinofert – offering its solutions NOxCare and Air1. Additionally, together with local partners, Yara has built a strong market position in Singapore. Also, Yara’s first deliveries of Air1 to Colombia and Brazil took place in early 2009. With new national emissions standards legislation coming into effect in North America as of 2010, this is another potential growth market for Yara. Yara now supplies AdBlue/DEF solutions to 45 countries.