alistair wallace - firt firt outlook... · cru group nitrogen outlook. strong demand fundamentals...
TRANSCRIPT
Alistair WallaceDirector, Senior Consultant and
Nitrogen Team LeadCRU Group
Nitrogen Outlook
Strong demand fundamentals underpin nitrogen market, but...
...producers have overcooked medium‐term capacity investment.
Geopolitical risk is higher than ever and tightening markets.
China’s huge capacity is driving the global nitrogen market. For now.
Presentation Structure
Demand‐side fundamentals
Crop prices stabilise; medium‐term gains likely
0
100
200
300
400
500
600
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Expo
rt pric
es (U
S$/t)
Wheat Corn Soyabeans
Population and macro economy support crop acres
100
120
140
160
180
20020
00
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Inde
x (2000 = 100)
Population Grain consumptionVegetable oil consumption Meat consumption
50
100
150
200
250
300
Jan‐11 Jul‐11 Jan‐12 Jul‐12 Jan‐13 Jul‐13 Jan‐14 Jul‐14
Jan 2006
= 100
Index of Urea Prices Index of Crop Prices Affordability index
This has also been supported by N affordability
Driving crop areas and higher application rates
671 690 738 765
187 232253 28595
108120
127192
204218
21481
105
116
128
‐10
10
30
50
70
90
110
130
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2000 2010 2014 2019
Nutrient dem
and (million tonnes N
)Area
(million he
ctares)
Grains&Rice Oilseeds Fruit&Veg Other crops Total N fertilizer
China over‐applies N, while others under‐apply
Brazil
USA
India
MexicoArgentina
China
0
20
40
60
80
100
120
140
0 50 100 150 200 250
P+K ap
plication (kg/ha
)
N application (kg/ha) Bubble size = yield
China applies more fertilizer to corn than the USA but achieves lower
yields
Population will continue driving N consumption
0
2
4
6
8
10
12
14
16
18
20
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
1750 1800 1850 1900 1950 2000 2050
kg N/ppmillions Global population N consumption pp
Overcooked supply
More capacity built this decade than previous 25yrs
0
10000
20000
30000
40000
50000
60000
70000
80000
1950‐1960 1960‐1970 1970‐1980 1980‐1990 1990‐2000 2000‐2010 2010‐2020
Ammonia capacity(000 tonnes)
China
Rest of the World
Urea supply additions: Today to 2019
CIS:4.2 mn
NA5.0 mn
LATAM:3.3 mn
Mid E1.1 mnAfrica
4.4 mn S. Asia1.9 mn SE. Asia
1.9 mn
China14.5 mn
Investment lowers trade & hurts marginal supply
Investment in North
American and LATAM capacity
Investment in low cost CIS, MENA & SS African export capacity
Weak prices have slowed building, so has inflation
Urea capacity growth is now outstripping demand
90
100
110
120
130
140
150
160
170
180
190
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Index: 100=2010 Capacity Consumption
However, the result is a forecast of low op rates
75%
80%
85%
90%
95%
100%
105%
0
20
40
60
80
100
120
140
160
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Mn tonnes Spare capacity Non‐China prod Op. rate Exc China exports
Supply disruptions
Physical disruptions in Ukraine tighten ammonia
Urea availability fallen to 40% (100kt/m). Ammonia down to 25% (25‐30kt/m)
At‐risk tonnage in the merchant ammonia market
Trinidad3%
N. Africa3%
Ukraine 3%
RoW91%
Trinidad24%
N. Africa8%
Ukraine 7%
RoW61%
Global Ammonia capacity = ~200 million t/y Traded Ammonia Market = 19-20 million t/y
Urea now worth less than the value of its ammonia
‐100
‐50
0
50
100
150
200
250
0
200
400
600
800
1000
1200
Jan‐11
Mar‐11
May‐11
Jul‐1
1
Sep‐11
Nov
‐11
Jan‐12
Mar‐12
May‐12
Jul‐1
2
Sep‐12
Nov
‐12
Jan‐13
Mar‐13
May‐13
Jul‐1
3
Sep‐13
Nov
‐13
Jan‐14
Mar‐14
May‐14
Jul‐1
4
Sep‐14
Nov
‐14
$/tonne$/tonne Nitrogen Black Sea Nitrogen Pricing
Upgrade differential
Urea
Ammonia
China driving the market
Pressure is growing for more liberalisation
•Originally implemented in 2005 to decouple the domestic agricultural market from international prices
•As Chinese urea capacity expanded, the export duty has revised down; in 2014 high season = RMB40 +15%, while low = RMB40
•This is still market distorting with inventorying and warehousing tactics weighing on the low‐season
Capacity and liberal export policy boost China’s role
200
250
300
350
400
450
500
550
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
Jan‐11
Mar‐11
May‐11
Jul‐1
1
Sep‐11
Nov
‐11
Jan‐12
Mar‐12
May‐12
Jul‐1
2
Sep‐12
Nov
‐12
Jan‐13
Mar‐13
May‐13
Jul‐1
3
Sep‐13
Nov
‐13
Jan‐14
Mar‐14
May‐14
Jul‐1
4
Exports FOB Black SeaChinese Urea Exports('000 tonnes) FOB Black Sea ($/t)
Data: GTIS, CRU
China is limiting the impact of Ukraine’s troubles
0.000.200.400.600.801.001.201.401.601.80
Jan
Feb
Mar Apr
May Jun Jul
Aug
Sep
Oct
Nov
Dec
Million
s
Monthly ExportsRange 2009 ‐2013 4‐yr average2014 2014 forecast
0.0
2.0
4.0
6.0
8.0
10.0
12.0
Jan
Feb
Mar Apr
May Jun Jul
Aug
Sep
Oct
Nov
Dec
Million
s
Cumulative Monthly Exports2010 20112012 20132014 2014 forecast
0.000.050.100.150.200.250.300.350.400.450.50
Jan
Feb
Mar Apr
May Jun Jul
Aug
Sep
Oct
Nov Dec
Millions
Monthly ExportsRange 2009 ‐2013 4‐yr average2014 2014 forecast
0.00.51.01.52.02.53.03.54.0
Jan
Feb
Mar Apr
May Jun Jul
Aug
Sep
Oct
Nov Dec
Millions
Cumulative Monthly Exports2010 20112012 20132014 2014 forecast
Chinese export values price setting since mid‐2013
200
250
300
350
400
450
500
550
Jan 20
10Mar 201
0
May 201
0Jul 2010
Sep 20
10
Nov
201
0
Jan 20
11Mar 201
1
May 201
1
Jul 2011
Sep 20
11
Nov
201
1
Jan 20
12Mar 201
2
May 201
2
Jul 2012
Sep 20
12Nov
201
2
Jan 20
13Mar 201
3
May 201
3
Jul 2013
Sep 20
13
Nov
201
3Jan 20
14Mar 201
4
May 201
4
Jul 2014
Prilled FOB Black Sea Prilled FOB China$/mt
China’s urea market is in chronic oversupply
0
20
40
60
80
100
120
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Million t/y
Spare capacity Exports Domestic consumption
China less competitive as labour costs increase 65%
0.00
10.00
20.00
30.00
40.00
50.00
60.00
Hainan
Hebe
iShando
ngHe
nan
Fujian
Shanxi
Heilongjiang
Guangxi
Zhejiang
Guangdo
ngLiaoning
Jiangsu Jilin
Guizhou
Sichuan
Tibe
tJia
ngxi
Yunn
anHu
bei
Shaanxi
Hunan
Ningxia
Anhu
iCh
ongqing
Inne
r Mon
golia
Gansu
Qinghai
Tianjin
Xinjiang
Beijing
Shanghai
RMB/hr
2014
2019
0.00
1.00
2.00
3.00
4.00
5.00
6.00
2014 2015 2016 2017 2018 2019
$/MMBtu
5.505.605.705.805.906.006.106.206.306.406.50
2014 2015 2016 2017 2018 2019
RMB/USD
Coal & fright markets tighten; RMB strengthens
0
5
10
15
20
Jul 2008 Jul 2009 Dec 2009 2010 Apr 2011 May 2012 Feb 2013 Feb 2014
US$/tonne Cost per 1,000 km for Fertilizer Delivery in China
Market forces are distributing China’s resources
In conclusion...1. Strong fundamentals underpin both medium and long‐term
nitrogen demand...
2. ...but the market looking oversupplied following a massive expansion of global urea capacity and Chinese export policy
3. This will weigh on global nitrogen operating rates; especially so for prilled urea
4. China is now the global swing producer and events in the country’s N market will determine the medium‐term future of all N values
5. However, near‐term market remains prone to supply disruptions, especially on the ammonia side
This presentation is assembled by the expert staff of CRU’s fertilizers team, using information from a wide range of sources, including the International Fertilizer Industry Association (IFA), various regional and national agencies, and suppliers of international trade statistics, including GTIS, as well as individual producers and exporters of these products.