HOUSTON (ICIS)--CF Industries has seen robust ammonia demand this year, which is drawing down inventory and could lead some North American farmers to switch to urea ammonium nitrate (UAN) to cover their nitrogen needs for the upcoming crops, the US producer said on Thursday.
Speaking during the company’s quarterly earnings conference call, Bert Frost, CF senior vice president of sales and marketing, said that the producer expects 92m acres (37m ha) of corn to be planted, leading nitrogen demand to remain solid going forward but possibly sapping inventories.
“Robust ammonia demand is also being seen across our Corn Belt distribution points and is resulting in ammonia inventory quickly being pulled down. We believe this inventory drawdown is industry-wide, and our estimates show producer ammonia inventory to be very low,” said Frost.
“Given the tight inventory position in ammonia and urea, we expect farmers will increasingly seek UAN to fill their nitrogen needs," he added. "Additionally, recent wet weather patterns have curtailed pre-plant ammonia application in some areas of the Corn Belt. Farmers are now getting back into their fields and should be focused on getting corn seed into the ground and following up with UAN side-dress applications.”
Frost said that, given buyer reluctance to take inventory positions, UAN imports are also down from recent years. As a result, the market is becoming a very spot-focused UAN market, which CF expects will drive positive sales volume. CF's inventory has been positioned in anticipation of that demand, he said.
Looking past the spring application season, CF expects North American nitrogen prices, as represented in the US Gulf, to decline to global parity.
“These prices are being impacted by current Chinese urea exports, which are expected to increase during their low export tariff season. This market view is consistent with Chinese new tariff policy and the recent declines in Chinese coal prices,” Frost said.
“When the Chinese low tariff export season opens in July, we could see urea full prices similar to what we saw last year in the US Gulf," he added. "However, we expect the market to balance due production outages at marginal cost producers when prices decline below their cash costs.”
He said that the push by farmers to purchase more UAN than anticipated could continue through Q2 before the market starts building back inventory levels over several months.
Frost said that there was a high inventory level of ammonia industry wide as a result of post-harvest applications being delayed due to the onset of winter and that had caused some concern to start the year.
“Coming into the year, we did have a high inventory level of ammonia as well as the rest of the industry, and we were concerned because Q4 did not operate as well as we had hoped, and I suspect the industry probably had several hundred, if not 400,000, tonnes of ammonia unapplied,” Frost said.
“And we worked since December, you saw us export a few cargoes to mitigate that risk by moving product to our distribution facilities, selling product to some of the importers, moving product spot up through some of the tanks on the river, as well as our industrial business," he added. "So a multipronged attack, I guess, on ammonia, which served us well through the quarter and allowed us, I think, to enter into Q2 favorably positioned.”