Chemical Profile - Ammonia

25 November 2002 00:00  [Source: ICB Americas]

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AMMONIA   November 25, 2002

PRODUCER	CAPACITY*
Agrium US Inc., Borger, Tex.; Kenai, Alaska.	1,650
Air Products and Chemicals Inc., Pace, Fla.	50
CF Industries Inc., Donaldsonville, La. (4 units)	1,910
Chevron, El Segundo, Calif.; Richmond, Calif.	20
Dakota Gasification Company, Beulah, N.D.	390
El Paso Refining and Chemical, Cheyenne, Wyo.; Freeport, Tex.; St. Helens, Ore.	570
Farmland Industries Inc., Beatrice, Neb.; Coffeyville, Kan.; Dodge City, Kan.; Enid, Okla. (2 units); Ft. Dodge, Iowa; Lawrence, Kan.	2,490
Green Valley, Creston, Iowa	30
Honeywell, Hopewell, Va.	500
IMC-Agrico Inc., Faustina, La.	510
J.R. Simplot Company, Pocatello, Idaho	90
Koch Nitrogen Company, Sterlington, La. (2 units)	1,095
LaRoche Industries Inc., Cherokee, Ala.	160
MissChem Nitrogen, Yazoo City, Miss. (2 units)	645
Nitromite Fertilizer, Dumas, Tex. (2 units)	120
Potash Corporation of Saskatchewan Inc., Lima, Ohio; Augusta, Ga.; Geismar, La.; Memphis, Tenn.	2,040
Royster-Clark Inc., East Dubuque, Ill.	275
Terra Industries Inc., Beaumont, Tex.; Blytheville, Ark.; Sergeant Bluff, Iowa; Verdigris, Okla. (2 units); Woodward, Okla.,	2,385
Triad Nitrogen LLC, Donaldsonville, La. (2 units)	950
Total	15,880

*Thousands of metric tons per year, anhydrous ammonia (NH3). Ammonia is manufactured by the catalytic reaction of hydrogen with nitrogen. Natural gas is the dominant source of hydrogen, and the nitrogen is sourced from the atmosphere. In 1999, there were four permanent ammonia plant closings: PCS, Clinton, Iowa, and LaPlatte, Neb.; Wil-Gro Fertilizer Inc., Pryor, Okla.; and Solutia Inc., Luling, La. These closings amounted to 1,075 thousand metric tons of capacity. In September 2000, Agrium purchased Unocal Corp.'s agricultural products business, which included ammonia plants at Finley, Wash., and Kenai, Alaska. In December 2000, the Finley site, which housed the smallest ammonia plant, was closed. Other ammonia plant closings that year were: Borden Chemicals Inc. at Geismar, La., and Farmland's Pollock, La., unit. In total, the decline was 960 thousand metric tons of existing capacity. The loss was moderated somewhat with the start-up of Farmland's new ammonia unit in Coffeyville, Kan., rated at 355 thousand metric tons. Cytec Industries Inc., closed its Wageman, La., ammonia plant in June of 2001. This was formerly the Avondale Ammonia Company, operated as a joint venture between Cytec and LaRoche. Cytec acquired LaRoche's 50 percent share the previous year when LaRoche went into Chapter 11. LaRoche emerged from Chapter 11 in October, 2001. DuPont closed its Beaumont, Tex., ammonia plant in June, 2001, bringing the year's total eliminated capacity to 845 thousand metric tons. Terra Industries Inc., however, added 230 thousand tons of new capacity to the marketplace with the start-up of an ammonia unit in Beaumont, Tex., that same year. In January 2001, El Paso Energy acquired Coastal Corp., and with it Coastal Chem's ammonia facilities in Cheyenne, Wyo.; Freeport, Tex.; and St. Helens, Ore. The chemical business is being operated within El Paso Refining and Chemical. In June of this year, Farmland filed for Chapter 11 protection in order to reorganize. No divestitures in the ammonia business have been announced, but several of Farmland's ammonia plants have been idled. Other plant idlings this year include one of Koch's two plants in Sterling, La., PCS's Geismar, La., plant, and CF Industries' plant in Donaldsonville, La. MissChem Nitrogen and Triad Nitrogen are wholly owned subsidiaries of Mississippi Chemical Corp. Nitromite is a wholly owned subsidiary of Ultramar Diamond Shamrock. Profile last published 11/30/99; this revision 11/25/02.

DEMAND
2000: 19,470 metric tons; 2001: 18,890 metric tons; 2005: 20,500 metric tons, projected. Demand equals production plus imports (2000: 3,877 metric tons; 2001: 5,685 metric tons). Exports are negligible.

GROWTH
Historical (1996-2001): -1.0 (negative) percent per year; Future: 2.0 percent per year through 2005.

PRICE
Historical (1996-2001): High $325 per ton, barges, f.o.b. Gulf Coast; low $94 per ton, same basis. Current: $175-$185 per ton, same basis.

USES
Direct application fertilizer, 20 percent; other fertilizer materials (urea, ammonium nitrate, ammonium phosphate, ammonium sulfate, nitric acid), 69 percent; chemical intermediates (acrylonitrile, caprolactam, miscellaneous amines and nitriles), 5 percent; miscellaneous (including metals, pulp & paper, refrigeration), 6 percent.

STRENGTH
The situation is greatly improved from late 2000 and early 2001, when natural gas increased fivefold within a year. The dramatic increase temporarily idled more than half of all domestic nitrogen capacity and caused huge dislocations. Producers raised prices to offset their costs, which curbed consumption and encouraged massive imports of nitrogen fertilizers. Gas costs have since then retreated to near traditional levels, producers restarted most of their plants, and nitrogen fertilizer prices collapsed. Market conditions have continued to improve this year for nitrogen fertilizers. Fertilizer inventories are much lower as producers enter the new planting season. Prices have been strengthening for all grades of nitrogen, including ammonia. Corn accounts for 41 percent of fertilizer use by crop, so, corn plantings are a key driver for US fertilizer demand. The United State Department of Agriculture's June 2002 Plantings Report showed corn plantings increased by 4.1 percent to 78.9 million acres in 2002. Soybean plantings are expected to decline in 2002 and offset some of the increase in corn plantings. Total US crop plantings are estimated at 326.9 million acres in 2002, or an increase of about 0.6 percent over last year.The US is a mature fertilizer market. Total ammonia demand for fertilizers has remained between 10.5 and 12 million metric tons over the last decade. Demand declined by 3 percent in 2001 but is expected to recover in 2002 due to an increase in corn plantings. The increase in 2002 US fertilizer demand is forecasted at 2.5 to 3.5 percent. Demand should remain near this level or increase slightly in the medium term due to the new Farm Bill, which will support crop prices near current levels through favorable loan rates.

WEAKNESS
Poor profitability has driven the closures of nine ammonia plants in the US since 1999 with a total capacity of 2.3 million metric tons per year-about 13 percent of the US total capacity in 1999. And, during this period, about half of the operating plants were either idled for extended periods or turned down in their output because of natural gas price spikes. The US nitrogen industry generally experienced high operating rates prior to the escalation in natural gas prices after mid-2000. Ammonia operating rates dropped as gas prices rose. The lowest operating rate was reached in January 2001, when it dipped to around 50 percent as natural gas prices peaked at just below $10 per million Btu. Though gas prices have since retreated to about $4 per million Btu, this is still about twice as high as the industry had been used to paying. The US is the largest importer of ammonia from foreign markets, and the availability of relatively lower production cost imports keeps market prices checked and higher cost plants idled when natural gas prices increase. US ammonia imports have increased by more than 20 percent over the last five years to more than 5 million metric tons.

OUTLOOK
For the past two years, US ammonia producers' margins have been squeezed due to the rise in natural gas prices. The situation has been ameliorated with lower gas prices this year and profitability should significantly improve by the end of 2003. Depressed market prices because of cheap imports, particularly from Trinidad, have also hurt producers' margins. US ammonia imports are expected to continue growing over the medium term as this trend continues. The industry has been undergoing significant restructuring to recover from the oversupply situation. This will likely endure through 2003 with additional plant closings. Annual growth for the forecasted period is estimated at 2.0 percent per year.

-Mark Kirschner

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