With prices soaring for most agricultural commodities, global fertilizer markets improved sharply towards the end of 2010, driving demand for all plant nutrients.
Fertilizer market conditions
Global fertilizer markets improved sharply during the second half of 2010, due to higher prices of most agricultural commodities. Triggered by lower grain production, particularly in the former Soviet Union (FSU) area, grain stocks fell sharply, and prices increased. However, the drought in the FSU primarily affected wheat and barley production. Tighter supply-and-demand balances for most other agricultural crops, including sugar, cotton and coffee, clearly demonstrate that the challenges to supply are much broader than the problems in the FSU. The FAO Food Price Index ended 2010 at levels above the peak reached in spring 2008. Higher prices for most agricultural crops led to stronger demand for all plant nutrients.
Global urea trade increased by 14 percent in 2010, according to a preliminary survey by the International Fertilizer Industry Association (IFA). The year started with a relatively strong first quarter, due to just-in-time purchasing by many key markets during the 2009/10 season. The market turned supply driven during the second quarter, with production curtailments forced on the highest cost producers, including the Ukraine.
From June on, prices increased every month, driven by increased demand. The increased import demand was primarily met by an additional 3.5 million tons of urea exported from China, in addition to urea exports from the Arab Gulf. Chinese exports increased as a result of attractive global price levels. Urea production in China declined sharply during the second half of 2010, due to higher coal costs, gas shortages and stricter measures on energy efficiency and emissions.
The ammonia market also improved during 2010, particularly during the second half, as a result of stronger nitrogen demand in USA, along with stronger global demand in the phosphate and industrial sector. Stronger demand allowed Ukraine, the main swing producer, to export 1.1 million tons in 2010, an amount less than its available capacity, but substantially up from the 2009 level of just 0.3 million tons.
Demand for phosphate fertilizer rebounded strongly in 2010, following very weak demand in 2009. Despite the industry outside China running at full capacity, sharply higher exports from China did not prevent DAP prices from ending 2010 at around USD 600 per ton fob major export port, compared to USD 400 per ton at the start of the year.
Overall, phosphate rock and phosphoric acid prices followed the price of DAP, with relatively strong margins for non-integrated producers throughout the year. Demand levels meant that neither acid nor rock producers needed to curtail production.
Potash demand also rebounded strongly, although year-end prices were similar to those in January, with the low point at midyear. The demand increase in 2010 led to stronger production volumes rather than higher prices, because high price levels during 2009 had induced farmers to reduce their potash application rates.
|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
|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 up eight percent from last year, as a result of late purchasing during the 2009/2010 season and a stronger start to the 2010/2011 season. Imports were up by 11 percent, gaining market share due to supply limitations at domestic producers. Both nitrate and NPK demand and prices received a strong boost from tighter global nitrogen and phosphate markets, which were caused by the increased crop prices.
In a similarly but even more pronounced pattern, US nitrogen deliveries were up by an estimated 19 percent on the previous year, with imports increasing by 31 percent. This statistic includes nitrogen for industrial applications.
Urea sales in India were up seven percent season to date (April-December) following a favorable monsoon and improved crop prices. Domestic production was up only two percent, which increased the need for imports. Imports during April to January were up by 1.4 million tons, or 29 percent.
China exported a record 7.0 million tons of urea in 2010, compared with 3.3 million tons the year before. Roughly half of this volume was exported in the fourth quarter, due to attractive export prices. Urea production hardly changed from 2009, but a strong production performance during the first half was followed by low capacity utilization during the second half. This was due to higher coal prices, limited availability of natural gas as well as stricter measures on energy efficiency and emission controls. Phosphate production continued to increase strongly.
Brazil imported 2.5 million tons of urea in 2010, up from 1.9 million tons last year, due to the sharp improvement in farmer economy. Deliveries of all main nutrients were up nine percent from 2009, at 24.5 million product tons.
Industrial market conditions
The market for environmental applications has gained additional momentum since legislation for nitric oxide NOx emissions from trucks was introduced in the USA at the beginning of 2010. Brazil is set to introduce similar legislation in 2012, paving the way for further global growth for NOx abatement products. In Europe, the rate of adoption of NOx abatement products has been rapid since legislation was introduced in 2006.
Now, all new heavy-duty diesel trucks use Selective Catalytic Reduction (SCR) technology, which utilizes AdBlue urea as a reagent. In the stationary segment, many co-generation power producers and the European cement industry have begun installing SCR-based NOx abatement equipment, typically using aqueous ammonia as a reagent.
Growth in the mining sector continues to outpace GDP growth, driven primarily by Chinese economic growth. Strong demand for energy and steel has led to intensified coal and iron ore mining activity, which are the main consumers of technical nitrates (civil explosives). Floods in Australia and Colombia during the autumn of 2010 led to the shutdown of many coal mines in these countries, which in turn resulted in a temporary reduction in demand for technical nitrates in the sector. Coal mining activity is expected to rebound sharply in 2011.
Nitrogen demand for the process industry recovered strongly in 2010, following the economic turmoil of the previous year. Higher output in the auto industry and construction sector had a positive effect on demand for products such as nitric acid and glue urea.