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2014: A tumultuous year of prosperity and challenges for the nitrogen industry
By Laura Cross, Lead Nitrogen Analyst laura.cross@integer-research.com
The nitrogen industry has long been the dynamic life and soul of the glittering fertilizer party. My colleagues will call me biased, being Integer’s flag bearer of all things nitrogen, but if we cast our minds back to the movements of the last 12 months, I think the market analysis speaks for itself.
The undoubted champions in 2014 were ammonia sellers, who benefited from almost uninterrupted price increases in the first ten months of the year. This was in stark contrast to the urea and nitrates markets, which suffered the weakest year since 2009. Ultimately prices converged in Q4 2014 when ammonia prices finally ended their bull run, but for nitrogen producers outside of the merchant ammonia gang, the year is likely to have ended on a muted note financially.
Then there were the dramatics: from the “will they / won’t they” saga of Yara and CF’s potential merger, to the North American capacity investors easing their feet off the gas pedal and a flurry of emails in our inboxes asking questions over the potential impact of tumbling oil prices. We learnt that Yara’s internal politics became a juicier story for reporters than its high-profile merger talks in October, and while the Yara and CF deal wasn’t to be, it was followed by notable M&A activity among other producers in marginal cost regions such as Europe.
We ended the year watching the oil market with baited breath, after prices inched lower towards $50 per barrel (and subsequently dipped below this level in January 2015). The shock tumble in oil prices raised questions about the knock on effect on nitrogen prices.
The factors that need to be taken into consideration are numerous and varied, but can be summarised very briefly as follows. Latest consensus forecasts suggest that oil prices can be expected to rebound later this year, albeit unlikely to hit the previous US$100+ per barrel level anytime soon. If a reversion to trend in oil prices occurs quickly enough, it is likely to moderate the effect on gas and coal prices, and therefore nitrogen prices. Perhaps most importantly, however, is the makeup of energy markets in the nitrogen industry’s marginal regions, such as China, where coal prices may have effectively already reached the floor following earlier and sustained oversupply.
Integer will be releasing a white-paper addressing the impact of the change in oil prices on our nitrogen price forecasts. To receive this document once it is released, please email me or call me directly on +44 20 3696 2363.
Read more on Integer’s Nitrogen Service here
Phosphates 2014: A tale of four quarters
By Adam Panayi, Lead Phosphate Analyst adam.panayi@integer-research.com
The phosphates market went through four clearly definable phases in 2014, which is highly convenient for someone charged with writing a review of the year of the market in roughly 200 words. These four phases also broadly, if not quite entirely, correlate with the four quarters of the year. So, taking the first quarter as a starting point, tight margins at producers and a seasonal uptick in buying in the USA and Latin America led prices to rise 12% from January to March, with US Gulf fob DAP prices rising from roughly $440 to a shade under $500 per tonne.
The second quarter was marked by a reversal of this trend, as destocking took hold and the Chinese export window opened, with prices falling in May back to January levels. A return to buying in Latin America, and a run of purchases from South Asia saw prices rise sharply into the third quarter peaking for the year in July at nearly $510 per tonne. While in the final quarter we saw prices contract again, as buyers withdrew from the market due to weak seasonal demand. This prompted producers’ margins to contract, and set us up nicely for a rally in the first quarter of 2015 as buyers in Latin America and the US come back to the market, and so it continues.
Read more on Integer’s Phosphate Service here
What potash and Manchester United had in common in 2014
By William Irwin, Lead Potash Analyst william.irwin@integer-research.com
In the world of English football, disappointing teams are always said to be in transition. When you fall from the top, its transition or decline and, though complaining is many a fan’s favourite activity, transition is always preferable (I’m thinking particularly of Manchester United and, sadly, my team, Arsenal).
Fortunately that is where the comparisons between soccer and potash end. Not just so that you do not have to suffer a painfully extended metaphor – can you imagine the instability if CEOs were swapped as regularly as Premier League managers?
Potash profitability and revenues in 2014 were undoubtedly disappointing if compared to those of recent years. But fortunately it is a matter of transition, not decline. The industry has undergone a period of re-shuffling since the breakup of Belarussian Potash Company, Uralkali and Belaruskali’s former joint export marketing arm, in July 2013. Belaruskali and Uralkali were initially aggressive in their fight to gain market share in the face of significant disruption. But they are expected to fall more into line in 2015.
The initial shock of the break-up forced prices down by around 25%; spot sales virtually ceased for six months. Due to the long term nature of potash contracts, prices have remained at these low levels all year but now, with 2015 contracts soon to be agreed, there is a chance for producers to re-assert themselves. Volumes have been up significantly in 2015 and the industry now has the chance to find a new equilibrium – most likely one somewhere between the higher prices of the 2011H1 2013 period, and the levels reached in late 2013.
We also seem to be entering a new phase in terms of capacity additions and projects as we enter 2015. Again, there was a period of speculation and re-shuffle after July 2013 – ICL took a big stake in Allana Potash, everyone was wondering what BHP Billiton would do or say, Chinese and Indian investors presumably reassessed the strategic value of their project investments in light of lower prices. Uncertainty seems to have calmed somewhat – even if not everyone fully knows what BHP Billiton is planning for Jansen. SOP projects have emerged looking considerably more attractive after a run of high prices, Acron’s Talitsky project seems to now be favoured by the Indian Government as Russian players scramble for investment not subject to sanctions, and one or two previously less advanced projects, such as Highfield Resource’s Muga project, have emerged as strong contenders for significant further development.
Click here for more information on Integer’s Potash Market Service
Sulphur 2014 – what goes up must come down
By Meena Chauhan, Sulphur Research Manager meena.chauhan@integer-research.com
Sulphur prices have sky-rocketed to a high of $185 per tonne cfr in China and, according to some, have the potential to rise further before January is out. Although there is a degree of surprise in the industry over the current sulphur price spike, looking back at 2014 shows a sulphur price cycle, which may well be repeated this year. At the start of Q1 2014, prices jumped up to over $200 per tonne cfr in China, buoyed by a bull run in traded DAP prices alongside a drop in China sulphur inventories and winter logistics in some supply regions leading to seasonal tightness. By the end of Q1 2014, the market reached breaking point, however, and a downward correction ensued.
This price pattern continued through the rest of the year with monthly price postings in the Middle East building up significant increases compared with 2013, as export supply remained broadly stable while seasonal fluctuations in demand from the phosphates sector influenced consumption cycles. Price volatility was a regular feature through 2014, reflecting a change in buying strategy by some key markets in recent years and the influence of producer pricing tactics. Chinese sulphur inventory levels can drop close to 1 million tonnes, which will normally result in a buying frenzy, driving prices up at great speed. Equally, as inventories build up, buyers can comfortably retreat to the sidelines. The majority of pricing in the Middle East has shifted to monthly posted pricing, allowing producers to make major changes from month to month.