Global Market Outlook on Urea

The urea market is set to experience a soft balance in the short term, moving to potential growing surpluses in the long  term (until 2021 – 2022). Surplus situation is expected to persist during the next five years, reaching 8 percent of the potential supply availability .The balance in the short term is resulting from China’s contraction in capacity and decline in export share, owing to ‘zero  growth’ policy in place for fertilizer demand, which largely impacts urea, since China has always been the dominant demand center (35 percent of the global demand); however, recent developments of poor economies of scale (high input coal costs) and tax reform (13 percent VAT on fertilizer) are keeping the global urea market in balance.

urea-market-size

Demand Market Outlook for Major Urea Markets

  • N-Fertilizer value drivers have a profound impact on the urea market. Some of the major drivers that result in having an effect on urea: 
  • Chinese coal prices -->Supply-driven price for urea 
  • Change in grain inventory/price --> Urea demand Active value drivers of urea will impact other nitrogen fertilizer prices, since urea and its derivatives are the most commonly used fertilizers across major markets, like India, North America, and Brazil

Industry Best Practices: Pricing Dynamics

  • While energy costs for the ammonia swing, producers set a price floor for ammonia 
  • The ammonia price sets a price for urea 
  • If the urea price drops below this floor, more ammonia will be offered for sale, less urea will be sold, and the relationship will be restored
  • In a tight supply–demand scenario for nitrogen, where there is a demand-driven urea margin, the correlation is low. Such a scenario is often witnessed during the period with strong prices for agricultural soft commodities

Global Market Size: Urea

  • Urea fertilizer prices are looking to firm up after years of weakness. This is resulting from signs of global tightening, resulting from strong Indian imports combined with low export availability out of China. Exports from China are dwindling because of low global prices and very high cost of production, owing to the huge increase in bituminous coal prices in China 
  • Although capacity had increased in the US, it may not cover the export volume, which will be lost from China. These factors are expected to drive urea prices upward, which will eventually enable the urea market to breach $65 billion mark by 2020
  • Key drivers for growth in urea’s market size will be strategic alliances and acquisitions between global leaders, which will determine the future growth of the urea market through consolidation; however, growth in urea will be offset by other N-fertilizer types, like nitrate, which is more environmental friendly. For instance, in Europe, demand for urea is paling, owing to its impact on the environment (long carbon footprint life cycle), and there are alternatives to urea, which have significantly lower impact than urea-based products

Global Supply–Demand Analysis

  • During the last one and half decade, China added capacity at a rapid pace that totally out paced the global demand. Currently, the trend is getting reversed with other regions adding more capacity and China idling its capacity, due to stringent environmental norms and higher production cost. This is expected to bring some balance in global supply – demand

  • Urea represents half of the total nitrogen output and will contribute to two-thirds of the projected ammonia capacity increment over the next five years.The global urea capacity is projected to increase by 17 MT to 226 MT in 2021. On a regional basis, Africa, North America, and EECA will account for 70 percent of the overall capacity growth

Supply and demand outlook: 

  • Global urea supply is estimated to be at 190 MT in 2022, growing at 2 percent annually over 2017–2022

  • Developing nation to push the demand: Sustained annual growth of urea demand, owing to rise in consumption from LATAM and South Asian markets