INDUSTRY INSIGHTThought Leadership

New US ammonia and urea capacity puts pressure on GCC exporters

By Stephen Mitchell, Editor – Nitrogen, Argus Media

Over the last two years, the US has added significant new capacity to world fertilizer markets, thus reducing export opportunities for GCC producers, and while some exporters have increased their shipments to the US, the overall volume shipped from the region has seen a dramatic decrease

All six of the new urea plants built in the US since 2016 are now on stream, adding nearly 5mn t/yr to existing production capacity. Five of the new units are located inland and are directly replacing urea previously imported, much of it from the GCC. In addition, two standalone ammonia plants have started up, together adding 1.55mn t/yr to US capacity and dramatically reducing the need for imported ammonia.

New US capacity additions

  • CF Donaldsonville – 1.2mn t/yr ammonia, up to 1.25mn t/yr granular and up to 1.8mn t/yr UAN solutions depending on product mix, on-stream fully in 2016
  • CF Port Neal – 790,000t/yr ammonia, 1.35mn t/yr granular urea, plus DEF, on-stream Q4 2016
  • Dyno-Nobel Waggaman – 800,000t/yr ammonia, on-stream 2016
  • Agrium Borger – 600,000t/yr granular urea, on-stream Q1 2017
  • Iowa Fertilizer Wever – 726,000t/yr ammonia, up to 400,000t/yr granular urea and up to 1.6mn t/yr UAN solutions, or DEF, depending on product mix
  • Koch Enid – 1mn t/yr granular urea, on-stream Q4 2017
  • Dakota Gas Beulah – 330,000t/yr granular urea, on-stream Q1 2018

BASF-Yara Freeport – 750,000t/yr ammonia

“The overall tonnage shipped from the Middle East to the US has dropped dramatically; GCC countries exported 1.77mn tons less urea to the US last year than in 2015-2016.”

Urea imports falling

Since the first new plant started producing – CF Industries’ new unit at Donaldsonville in Louisiana in 2016 – urea imports have fallen by nearly 3mn tons. US imports peaked at about 7.6mn tons in 2015-2016, falling 38% to 4.69mn tons in the year ended 30 June 2018, according to statistics from The Fertilizer Institute.

A further decrease is likely in the coming year because some of the more recent start-ups have only ramped up to full capacity over the past few months. Allowing for some expansion in the overall urea market, analysts are predicting an eventual decline to around 4mn t/yr in US imports.

As the largest suppliers to the US, GCC countries have been most affected by this change in trading patterns. In 2015-2016, GCC countries accounted for 57% of all US imports. This proportion has changed little, but the overall tonnage shipped from the Middle East to the US has dropped dramatically. GCC countries exported 1.77mn tons less urea to the US last year than in 2015-2016.

US prices fall below world markets

Increased US output and the consequent fall in import demand have had a marked impact on prices. The benchmark price for urea fob barge in New Orleans (Nola) has fallen relative to prices in other markets, notably Brazil which is seen as the main point of comparison.

The accompanying graph shows how Nola prices slipped gradually during 2016-17 to trade at a substantial discount to cfr Brazil prices. Based on Argus’ weekly price assessments, the netback to exporters to the US was nearly USD 20/t lower in 2017 than from Brazil. US netbacks have remained at a discount for exporters in 2018, although this has narrowed to about USD 8/t for the year to date.

All but one of the new US plants are located inland and close to the main agricultural areas. This gives them a significant transport cost saving over imports, which are mainly shipped to New Orleans and then barged up the Mississippi to the same areas, and accounts for why import prices have fallen relative to other markets.

Reaction varies

The reaction of Middle East exporters to lower US demand and declining returns has varied widely. The two largest exporters, Muntajat and SABIC, have continued to ship large tonnages to the US, reluctant to give up on a market they have spent many years developing.

Qatari supplier Muntajat is by far the largest single exporter to the US, shipping 1.3mn tons in 2017-2018. SABIC exported over 600,000 tons in the same year. The US has been a key baseload market for the two largest Middle East exporters for some time and will remain so.

In contrast, shipments from the other GCC exporters have all fallen markedly since 2016 as producers and traders have sought the highest netbacks for their urea. Exports from Abu Dhabi and Oman have fallen by two thirds, while exports from Kuwait and Bahrain through PIC have been cut by three quarters.

Most of the dislocation caused by the new US urea capacity has taken place. Further, lesser decreases in imports are expected in the coming year, but overall the main changes to trading patterns and the main price impact are probably behind us.

Reduced export opportunities in the US have obliged GCC countries to focus on other markets, notably in Asia and Africa, where the reduction in Chinese exports has created demand for urea from the Middle East.

Brazil is the other main focus, the country have replaced the US as the largest destination for spot urea imports in the world. Urea imports rose to more than 5mn tons for the first time in 2017 and GCC countries accounted for 60% of the total.

Ammonia trade also affected

Ammonia trade has also been affected by the new US capacity. Imports fell by more than one third between 2015-2016 and 2017-2018, equating to 1.7mn tons less product moving into the US. The main country affected is Trinidad and Tobago, which saw its exports drop by over 1.1mn tons over the two-year period.

Little or no Middle East ammonia is ever shipped to the US because of high freight costs, but the displacement of Trinidad ammonia from the US has had repercussions elsewhere. More Trinidad ammonia has found its way to Europe and Morocco, for example, competing with established suppliers in Europe and the former Soviet Union and squeezing GCC ammonia out of these markets.