OUTLOOK ’16: Global fertilizer demand set to rebound in 2016 – IFA

By Richard Ewing

LONDON (ICIS)–Tough macroeconomic conditions meant 2015 was a challenging year for many fertilizer markets, but industry bosses expect demand to rebound in 2016 through a combination of stable crop prices and stronger growth in emerging economies.

According to the International Fertilizer Industry Association (IFA), global fertilizer demand is forecast to expand by 1.9% in the next year to 186.6m tonnes, “assuming no major changes to agricultural market fundamentals”.

For nitrogen products, urea demand should advance by 3%, year on year to 173m tonnes, according to the Paris-based group, with demand driven by firming urea use in both fertilizer and industrial applications.

Ammonia capacity is expected to increase by 5% year on year to 242m tonnes courtesy of new plants in the US, Saudi Arabia, Indonesia, Nigeria and Russia.

However, most of this ammonia will be used as feedstock for urea where supply is expected to jump to 187m tonnes in 2016 from 179m tonnes in 2015, IFA added.

Heavy investment in Morocco and China means global processed phosphates capacity should grow by 3% over 2015, to 97m tonnes of products in 2016.

Meanwhile IFA projects global potash capacity in 2016 will expand by 8% over 2015 to 94m tonnes, with new capacity in Canada behind most of the hike.

World elemental sulphur production is forecast to grow by 7% year on year to 64m tonnes, IFA continued.

Sulphur consumption is forecast to rise 3% from 2015 to 61m tonnes because of “firming demand in fertilizer and industrial segments and rising sulphur nutrient demand”.

Here is a brief overview from the ICIS fertilizer editors of recent market activity and what may lie ahead in early 2016:

Oversupply has been a feature of the urea market for much of 2015, with new capacity coming on-stream, and this is set to continue through into 2016 as more nitrogen capacity is due to start up.

While demand for urea is expected to continue to grow, this will be more than offset by the increase in availability.

Lower average prices had been expected this year due to the extra supply and expectations are that lower average prices will be seen again next year.

Urea producers have been helped by falls in feedstock gas and coal prices this year, but margins have still diminished.

The phosphates market is approaching the end of the year with some indications of optimism for 2016, following months of a downward cycle.

Buyers are expected to return to the market from mid-January in Europe, North America and Latin America following the Christmas holidays.

Indian buyers, on the other hand, seem in no hurry to make purchases, as DAP stocks in the country are high. Import volumes will depend on the fertilizer subsidies for the next fiscal year, which are expected to be announced in Q1.

In 2016, there are expectations in the market that prices will bounce back, especially as prices have fallen in some markets by $100/tonne since December 2014, like Nola DAP and Brazil monoammonium phosphate (MAP).

West of Suez, the Tampa DAP benchmark remains unchanged due to a lack of business from Mosaic. In the domestic market, DAP barge prices remain under pressure due to lacklustre activity and weak demand. Market players agree that market prices have reached a floor and activity will pick up in the new year.

On the supply side, most producers are sold out for January and are getting ready for next year’s demand.

In Africa, Moroccan phosphates giant Office Cherifien des Phosphates (OCP) is heard focusing on phosphoric acid production for India and nitrogen phosphorous sulphur (NPS) for Ethiopia.

Chinese producers are expected to compete aggressively in the DAP/MAP export market, especially since the export tax for DAP/MAP will remain at a flat rate of Renminbi (CNY) 100/tonne ($15.43/tonne) for 2016.

Ammonia prices in the key Black Sea and US Gulf regions slumped by nearly $200/tonne in 2015 and indications things will get worse for producers before they get better.

Shortly before Christmas, prices plunged 10% to around $275/tonne FOB (free on board) Yuzhny and further falls will almost certainly arrive in early 2016 as spot buyers as far away as Asia Pacific target $250/tonne FOB Yuzhny.

In a bid to halt the fall, Ukrainian producer Odessa Port Plant (OPZ) decided to take one of its two ammonia units offline in late December, following the lead of major Russian exporter TogliattiAzot which cut capacity at one of its plants earlier in the month.

However, with plenty of spot availability in the Baltic, Turkey and North Africa, prices are not expected to rebound until at least February when demand from the US should come to their rescue.

In addition, Russia’s Acron is heard in talks with several parties as it looks to secure off-take agreements for up to 380,000 tonnes of ammonia available for loading in Sillamae, Estonia, in 2016.

The producer’s new 700,000-tonne/year Ammonia-4 unit is due to come online in April and the manufacturer is understood to be discussing potential supply contracts with the likes of Yara.

The $420m plant is expected to generate around 550,000 tonnes/year of merchant ammonia from 2017.

In the US, expectations are building that growers will plant more corn acreage this coming season, with some estimates in the 90m acres range.

With constraints on crop prices motivating more corn sowing due to more favourable margins than soyabeans or other row crops.

If corn does see a price uptick, it would result in more ammonia demand which should help reverse the slide the nutrient has experienced over the close of 2015.

Urgency for volumes would also be heightened by a lacklustre refill in certain regions, especially in the western Corn Belt.

Another aspect that would help spur a market rebound would be a shorter winter period and an early start to field activities.

Weather forecasters have pointed to the presence of the current El Nino pattern as signalling a potential earlier spring.

The sulphur market looks set to come under a new wave of price pressure following cuts in phosphate production by two major producers at a time when new capacity is expected to come out of the Middle East.

Major phosphate producers OCP and Mosaic have both cut phosphate production because of poor demand from the US and Brazil and both are major buyers of sulphur. 

Additional capacity will be available at the port of Ruwais in Abu Dhabi following the completion of the railway line from Shah and Habshan to the port.

Cuts in phosphate production and new sulphur capacity just ahead of the Lunar New Year holiday in China could see the buying and selling of sulphur grind to a halt.

A trader described market conditions as difficult and negotiations as tough for major importer China.

Internationally, first-quarter contract prices are expected hold steady or slightly decrease since the value of sulphur remained relatively stable during the fourth quarter.

Demand is set to remain elusive in the global potash market next year with prices in the key market of Brazil falling by 23% during 2015.

Producers feeling the pinch on their impressive margins began cutting back on production with PotashCorp, Mosaic, Belarusian Potash Company (BPC) all announcing a reduction in Q4 volumes, with the cuts likely to last into the first half of 2016.

K+S also had cutbacks, albeit due to restrictions on saline wastewater disposal at its Werra site in Germany.

With significant price decreases for potash, participants began to speculate that the Chinese buyers would start negotiations for annual volumes sooner to take advantage of the price drop.

However, current estimates are that Chinese contracts may not settle until the second quarter – or at the earliest after the Chinese Lunar New Year.

With December ending with limited news being emitted from southeast Asian tenders, Indian contract price discounts agreed but not confirmed and Chinese buyers lingering on the sidelines, the market looks set for just as much ambiguity in 2016.

Photo source: Design Pics Inc/REX Shutterstock

Rebecca Clarke, Julia Meehan, Sylvia Traganida, Deepika Thapliyal, Mark Milam, David Tonyan and Kate Wilcock contributed to this story.

($1 = CNY6.50)