Ammonia Pricing Rises on Strong Grain Fundamentals

14 June 2004 00:01  [Source: ICB Americas]

Major pricing points for ammonia have all increased over the last month as high natural gas costs continue to impact the market. In response, several producers have idled or closed ammonia capacity in the US. Looking to the second half, producers are uncertain on how production may be affected in light of continued cost pressures from natural gas, despite strong agricultural fundamentals.

Earlier this month, Black Sea ammonia rose to between $215 and $220 per metric ton, less than two months removed from a low of $130 per metric ton in April. Tampa ammonia rose to between $255 and $260 per short ton, up from an April low of $182 per short ton.

“The rise in ammonia pricing is due to a combination of factors including improved demand, recent plant turnarounds at various locations around the world and higher US gas and world energy prices,” says an Agrium Inc. official. “The higher gas prices have increased concerns that lower operating rates within the US may further boost import demand and tighten the market up even further.”

Ammonia demand in the US through the spring planting season was quite strong, especially for corn production. The US Department of Agriculture (USDA) projected a record US corn harvest of 10.425 billion bushels, based upon planted acreage derived from its March 31 Prospective Plantings report and a record yield assumption of 145 bushels per acre. The USDA projections for average farm prices for corn are $2.55 to $2.95 per bushel during the coming year, compared to a range of $2.45 to $2.55 per bushel in the 2003 to 2004 crop year. Corn production accounts for roughly 45 percent of nitrogen-based fertilizer consumption, followed by wheat at 20 percent, cotton at 7.5 percent, rice at 7.5 percent and all other crops at 20 percent. Demand for nitrogen fertilizers is also strong in South America, particularly Argentina and Brazil, notes a producer.

However, as agricultural fundamentals remain firm, ammonia continues to be plagued by high natural gas prices, which has led to recent closings or idling of ammonia capacity in the US. Terra Industries Inc. permanently closed an ammonia fertilizer plant last month in Blytheville, Ark., while Mississippi Chemical Corp., currently in reorganization, also permanently shuttered one of its two plants in Donaldsonville, La.. Potash Corp. of Saskatchewan has idled two ammonia plants—one in Memphis, Tenn., and another in Geismar, La.

Speculation in the industry is that with high gas prices in the US, there may be additional idlings for nitrogen-based products. While many facilities—both in the US and in the former Soviet Union—have entered their traditional turnaround modes for the summer in the run-up to the fall planting season, some sources find it plausible that producers will keep facilities idled for an additional time period because of natural gas prices. Henry Hub spot natural gas prices settled at $6.38 per mmbtu in early June.

“The bottom line is [that] people are optimistic about nitrogen fertilizer use,” says Mark Rosenbury, senior vice president and chief administrative officer at Terra Industries. “Corn markets are strong, [and] natural gas prices have raised a lot of uncertainty regarding how much production there will be.”

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