Jack Elliott, CRU Fertilizer Week, looks at what’s been behind the substantial liquid urea-ammonium nitrate (UAN) price rises in recent months, and whether the bulls are likely to remain at the helm in the weeks ahead.
China on the sidelines
Despite strong UAN demand and rising prices globally, Chinese exports have remained subdued, and are unlikely to rise soon even if prices continue to firm.
CRU estimates that global nitrogen values would need to increase to close to US$8.70/unit N to render Chinese exports of UAN feasible. This suggests a need for netbacks close to US$280/t FOB for UAN which would imply Chinese urea values close to US$400/t FOB, a highly unlikely prospect in the current urea market.
Fertilizer Week last assessed Chinese UAN on December 22 2017 at an indicative price of US$170-190/t FOB China, and has since reported the price point as ‘no market’ in the absence of reported activity.
Despite recent price gains globally, a significant increase would be necessary for China to become competitive again partly due to the country’s sizeable production costs. China occupies the highest cost position of the UAN exported cost curve, driven by rising coal costs and long freight distances to end markets.
Sources active on the market remain bullish in their outlook for UAN in the weeks ahead, although an easing in supply could cap gains. Rouen is suggested around 70% covered for the balance of the fertilizer year, leaving substantial remaining requirements to fill.
Lithuania’s Achema restarted its second ammonia line in mid-October, leading to a doubling in UAN output. The company has since been capitalising on strong demand and high prices, reportedly selling tonnes for export to Ghent or Rouen at €235/t FOB Lithuania last week.
GrodnoAzot in Belarus meanwhile said this week that it plans to ramp up its UAN capacity from 700 000 t to 1.2-1.3 million t between February-April 2019. It may take significantly longer for this to translate into production given limitations in port infrastructure and demand, sources said.
Despite this, significantly higher gas prices than at this stage will likely continue to constrain supply across Europe – while substantial remaining demand across Europe and in the Ukraine will also likely offer support in the weeks ahead.
Read the article online at: https://www.worldfertilizer.com/special-reports/05112018/uan-prices-continue-to-surge-part-2/