Ammonia has raised the price – Newspaper Kommersant No. 103 (7065) from 18.06.2021

The cost of mineral fertilizers is actively growing against the backdrop of high demand and local shortages in a number of countries. The good market conditions made a number of companies in Russia and abroad think about expanding their capacities, but so far we are talking only about raw materials for their own processing. Experts explain the restraint of the company’s plans by the expectation of a correction in the market in the next few months.

Prices for ammonia, urea, ammonium nitrate, azophoska, monoammonium phosphate (MAF) and diammonium phosphate (DAP) in June reached their maximum values ​​over the past few years. The leader of growth since the beginning of the year is ammonia, the cost of which reached $ 450 per tonne by June on a FOB Black Sea basis. Azophoska price exceeded $ 300 per ton. The price of urea in late May – early June jumped another 15%, to $ 368 per tonne (FOB Black Sea), MAP – reached a record $ 670 per tonne in the second week of June on a FOB Baltic Sea basis.

Dmitry Akishin from Vygon Consulting explains that a surge in prices up to 1.5 times to average dock levels is observed not only in the fertilizer segment, but also in many resource industries – petrochemistry, metallurgy and woodworking, and is somehow connected with a supply chain disruption with growing demand. Thus, freight rates have almost doubled.

The Gazprombank Center for Economic Forecasting indicates that, in addition to dollar inflation, the rise in the price of mineral fertilizers was facilitated by rising costs with an increase in gas prices, an increase in demand amid a rally in prices for crops, as well as the consequences of a deficit that arose due to the shutdown of chemical plants in Texas in February 2021. Another factor that influenced the quotes was protective duties on imports of phosphorus-containing fertilizers from Russia and Morocco to the United States, which led to a shortage of phosphates in the American market. In India, demand was stimulated by a significant increase (by 40%) in May of government subsidies for the purchase of DAP in relation to the plans announced at the beginning of the year.

Against the backdrop of such a situation, some manufacturers have already thought about expanding their capacities. So, in early June, the head of Phosagro, Andrey Guryev, said that the company was considering the possibility of building a complex for the production of ammonia and carbamide worth about 120 billion rubles. Also new projects in the nitrogen sector are planned in India and Nigeria.

But, explains one of Kommersant’s interlocutors in the industry, in all these cases we are talking about increasing the production of raw materials for its processing within the group and closing the deficit in the domestic market. In the phosphate segment, no large commissions were announced in the next two years. In addition, he says, many companies do not have sufficient funds for new construction due to their high debt burden. He recalls that the chemical market has been actively growing only for the last few months, and before that the prices for fertilizers were at the bottom, which forced producers to take out loans for investment projects already started.

Another source of Kommersant notes that the shortage in the market and the high level of prices largely support the lack of exports from China, which is now saturating the domestic market against the backdrop of colossal demand for agricultural products and the creation of reserves due to fear of a new outbreak of coronavirus.

Phosagro explained to Kommersant that a good situation on the world market will allow Russian fertilizer producers to partially refinance loans taken for modernization and capacity expansion projects in the previous investment cycle: over the past seven years, over 1.3 trillion rubles have been invested in total. “In conditions of a shortage of raw materials for the production of complex fertilizers, the development of ammonia production acquires additional economic feasibility,” the company noted.

At the same time, Uralchem ​​doubts that the period of high prices will last for a long time. “In our opinion, this is a speculative short-term period, which has been repeatedly confirmed by the historical price cyclicality of the fertilizer market,” the company told Kommersant. They are not going to revise their capacity expansion strategy, focusing on the transition to more efficient and environmentally friendly fertilizers. In the world, many capacities for the production of fertilizers of the previous generation are already being built, according to Uralchem, which leads to aggravation of competition.

Experts also expect a quick price adjustment. According to Nina Adamova from Gazprombank’s CEP, the market may be balanced in the next six months, but fertilizer prices will remain above the end of 2019 – early 2020. Dmitry Akishin agrees with her. In his opinion, supply chains in the chemical sector may improve in the next few months, which will return prices to standard levels. Therefore, the expert believes, it is too risky to rely on their current high level for making investment decisions.

Olga Mordyushenko



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