CFI predicting global nitrogen demand to remain consistent

11 June 2013 21:59  [Source: ICIS news]

HOUSTON (ICIS)--CF Industries officials said on Tuesday that the outlook for world nitrogen demand shows a consistent 2% growth at approximately 3m tons/year (2.7m tonnes/year), although it is likely that more than half of the announced new plants will never come online.

Global nitrogen capacity is expected to increase by 14% between 2013 and 2018, and the rise in production will reduce the global operating rate from over 80% to approximately 78%, Illinois-based CF said during an investor conference call.

According to CF, a large portion of expansion is coming from China, where continued export controls and off-setting plant closures are a reality.

“When you look back at the last decade, you can see that it was 2.3% growth on a very consistent basis,” said Doug Hoadley, CF's agribusiness analysts director.

“If you turn that into product tons per equivalent urea, that is about 6m tons, or 4-5 new plants each year. When you look out and see there [are] these projects, well that is what is needed to meet growth and demand.”

Hoadley said there have been a lot of projects and expansion announced the last year but that it should be viewed cautiously as several factors, such as capital expenditures, could results in these plants never being started, let alone reach a stage of production. He said in the North American market the capital cost element has dramatically increased.

“I think you have to take that with a grain of salt. We have done analysis, and when you look at it, it is only about 50-60% of the plants that are announced actually get built,” Hoadley said. “Based on the announced projects, capacity would increase by 22m tons, ex-China. But when you look at the projects, only about 50% [would] come on stream in that period.”

“It is the nature of this business. A lot of plants get delayed or even cancelled. Yes there are a lot of announcements, but not all these plants will get built.”

Offshore imports currently account for 38% of North American nitrogen usage, approximately 9m tons, with the US at over 50%. Hoadley said nitrogen imports will decline but that North America will still remain as an importer. The company holds the position that the additional capacity that could be forthcoming will largely be dedicated to producing upgraded products like UAN.

“There is still a significant gap where imports will continue, and we have done a forecast that is very preliminary, and the largest decline is going to be for urea,” Hoadley said.

Hoadley said looking at the cost curve of urea leads, CF predicts strong support for US Gulf pricing to be in the range of $320-340/short ton for 2013. He said the estimate is for there to be approximately 6m new tons of ammonia that will be added

“Shale gas has made a dramatic difference, where we reside on the cost curve,” Hoadley said.

By: Mark Milam
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