OUTLOOK '18: Ammonia buyers likely to hold upper hand

03 January 2018 14:00 Source:ICIS News

LONDON (ICIS)--Global ammonia prices bounced back strongly during the final phase of 2017, although that upward momentum is expected to run out of steam in early 2018, and sentiment is that prices will likely favour buyers over producers.

New plants in the US and Indonesia will add nearly 1.5m tonnes to a market already struggling to absorb capacity from new units both sides of the Suez Canal that have been brought onstream in recent years.

Fundamental changes have occurred in the market in the past few years, with Caribbean cargoes that would once have stayed in the Americas, now finding homes in Asia Pacific, north Africa, northwest Europe, and even India.

The catalyst for the change in supply chain dynamics has been US-based manufacturers' increasing access to cheap gas, with  major producers like PCS, Koch and CF Industries all becoming highly active in the spot market.

A snapshot of voyages from this week alone, shows PCS with two Trinidadian cargoes en route to BASF in China, 80,000 tonnes of CF material on its way to Morocco and Asia Pacific, and 40,000 tonnes of Caribbean ammonia from Koch bound for Korea and Taiwan.

Indeed, while new capacity will increase buyers' options and potentially cap prices, producers in the US and the Arabian Gulf see plenty of additional demand from China over the coming years.

The Chinese government's environmental clampdown and higher feedstock costs have seen many plants shuttered and buyers chase imported tonnes - with suppliers expecting an additional 600,000 tonnes of ammonia to arrive at the country's ports next year.

Some of that material will almost certainly come from Indonesia and Malaysia, with Mitsubishi's exclusive 660,000-700,000 tonne/year offtake deal with PT Panca Amara Utama (PAU) creating many sale opportunities for the Japanese trader.

Change is also underway at Indonesia's Kaltim Parna Industri (KPI), which will market its own material from March rather than hand it all over to Trammo.

The producer has been heard in talks over supply contracts with potential buyers in India and Thailand, in a move that will further weaken the influence of manufacturers in the Middle East.

India will remain the principal destination for contract deliveries from giants like the Saudi pair of SABIC and Saudi Arabian Mining Company (Ma’aden), Qatar's Muntajat, as well as various producers in Iran.

While other regions flourish, the Black Sea's declining  position in the global supply chain continues to weaken.

Less than five years ago, monthly export volumes averaged around 400,000 tonnes, while for 2017 they averaged less than half that total.

Russia's Togliatti - and exclusive marketing partner Ameropa - remain the dominant force at the Ukrainian port, but geopolitical issues, stronger domestic demand, and the gas supply woes of Odessa Port Plant (OPZ) mean its shine has faded.

The recent restart of Sorfert Algeria's export unit after a lengthy shutdown will add up to 80,000 tonnes/month of material to the market, while the future also looks brighter for the parent group's sibling plant at Ain Sokhna, Egypt.

That Red Sea facility run by EBIC-OCI is expected to run at decent rates during 2018, adding up to 60,000 tonnes/month to the supply pool, with it's position close to the Suez Canal making it an attractive target for traders.

With the global price surge of the last few months of 2017 driven by a supply squeeze rather than additional demand, and with more plants and players appearing in the market in 2018, ammonia buyers are expected to hold the more favourable position over the next 12 months.

ICIS Editorial Chart goes here

By Richard Ewing