OUTLOOK’18: Urea supply will continue to outpace demand in 2018

LONDON (ICIS)–The New Year may have begun on a quiet note for the urea market but prices are expected to remain under pressure through most of the year, given the oversupply situation.

India’s import tender on 22 December 2017, under which National Fertilisers Limited (NFL) purchased 387,000 tonnes of urea from Iran, has lent some support to prices at the start of the year.

The results of the tender show global supply is limited at the start of the year with only Iranian cargoes purchased under the Indian tender. There were no cargoes available in other regions to meet NFL’s shipment deadline of 20 January.

There was no participation from the Arab Gulf despite the tender price netting back to just around $250/tonne FOB(free on Board), which is higher than last concluded business from the Arab Gulf.

Granular urea prices in Africa are higher, with Egyptian suppliers quoting $10-15/tonne higher in early January 2018 compared to mid-December 2017.

Prices offers under the 550,000 tonne urea tender in Ethiopia also indicate that some traders expect prices in April-May to be around $40/tonne lower than January.

Some spring buying from Europe and North America is expected to support prices in the first quarter of 2018.

Lack of Chinese exports are also expected to support prices. Chinese production, which declined by 10% in 2017 to 55m tonnes, is expected to remain lower due to strict environmental controls.

China’s urea exports in 2017 are estimated at 4.7m tonnes, down 50% from 2016, while imports into China are expected to increase.

However, the outlook from the second quarter onwards remains muted with demand not likely to soak up all the supply. Capacity expansions in the US are expected to begin to displace urea imports into the US, creating more oversupply for the global market.

Global urea supply is estimated at 194m tonnes in 2018 when demand is expected to be around 174m tonnes, according to the International Fertilizer Association (IFA). This would mean a potential surplus of 20m tonnes of urea in 2018.

Lower import demand is seen in the US, India, Mexico, Bolivia in 2018 as domestic production increases while Nigeria, Russia and Indonesia are seeing capacity increases. Regional deficit could however lead to trade opportunities in south Asia, sub-Saharan Africa and Europe, according to IFA.