Ruth Sharpe, Argus Media, UK, takes a detailed look at the ammonia market, and discusses the impact that new capacity will have.
Tight supply supporting prices
Global prices are now in broadly in line with where they were trading at the beginning of the year after several months of relatively steady increases amid the global supply tightness. Yuzhny prices have risen from just below US$220/t FOB in late April to US$280/t FOB at the end of July, a relatively slow rise in a market that is traditionally volatile when supply tightens. The benchmark Tampa CFR price has been moving broadly in line with the trend seen at Yuzhny, with the August contract price recently settled at US$310/t CFR.
This suggests that spot prices are unlikely to rise sharply throughout the third quarter as sellers choose to move cautiously while the near-term price is well supported. There is diminishing support for spot pricing towards the end of the year, as buyers will have increased optionality for cargoes, which, in turn, should pull prices lower.
Waiting for the fall?
The market has had a much stronger first half of the year than many expected, but the threat of a fall in pricing continues to grow, especially with the likely addition of EuroChem's Kingisepp project at the end of the year. In December, there is potential for an ammonia surplus of 150 000 t, and many are expecting that this will be when the bottom of the market is next tested.
The current low for 2018 was seen in April when prices hit US$220/t FOB, at which point the Ukrainian Odessa Portside plant (OPZ) went offline, instigating a reversal in market sentiment. However, the fundamentals in the market appear to be stronger in 2018, and it is unlikely the prices will fall to US$190/t FOB Yuzhny where the market bottomed out in 2017.
Crude, gas and coal prices are all increasing and expected to stay firm for the remainder of the year. It is estimated that if prices fall below US$205/t FOB Yuzhny, significant capacity will be brought offline in the region.
In the freight market, spot prices are being pressured higher by firming bunker prices, which have risen by over 20% in the first six months of the year. Timecharter rates for a 35 000 m3 unit are steady at US$415 000/d. Momentum is building as several short-term and long-term charters have taken much of the idle capacity from the market. The operating ammonia fleet remains approximately 70 vessels with only a handful usually available in the spot market.
Will eastern buyers have options?
he markets east and west of Suez are forecast to diverge again in the first half of 2019, with markets in east Asia falling into deficit, while production levels in the west continue to rise at a healthy rate. The global balance is in deficit for January and February, but then moves into four consecutive months of surplus, with prices in Yuzhny forecast to reach up to US$250/t FOB.
Although the outlook appears to favour buyers into the second quarter of next year, producers are likely to change strategies before then and direct more ammonia towards urea production and domestic deliveries.
Fundamentally, the market remains oversupplied in the long-term, but the spot prices are likely to be dictated by how much key destination markets, such as China, India, Morocco, and Turkey, will require in the year ahead and how much export tonnage the new plants in the US, Indonesia and Russia will create.
Market sentiment is still essentially dictated by the supply situation in Yuzhny and the Middle East, and the ability of swing producers in both regions to remove spot availability from the market, which is likely to keep ammonia pricing relatively firm in the face of any new capacity additions.
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