Ammonia to Be a Buyer’s Market in 2019, but China’s Import Demand Remains Key
Massive capacity additions will continue to pressurize the already oversupplied ammonia market during 2019. New capacities in the U.S., Russia and other nations will prove to be good news for the buying community. The third quarter of 2018 witnessed some marginal tightness on the back of major plant turnarounds. However, the fourth quarter observed severe price corrections on the back of a supply glut and the market is yet to recover from the oversupply. As of early 2019, amid an already quiet global ammonia market, hardly a few cargoes were traded in the spot market. Overall, the contract prices and netbacks continued to remain bearish and are expected to stabilize by the middle of the first quarter of 2019 on the back of early seasonal demand and restocking.
The change in trade routes for ammonia is expected to be more noticeable in 2019. The material produced in Trinidad and Tobago will continue to hit markets across Europe, Africa and some parts of Asia in a more pronounced way. A couple of years back, most of this material stayed within the Americas. This will open suitable advantageous arbitrage opportunities for large-scale buyers globally.
China’s Dependence on Imports to Continue
The permanent closures of several units in China over environmental concerns and higher feedstock prices domestically will force China to depend on imports. According to estimates, the Chinese imports in 2019 are expected to close in on 1 Million MT, nearly three times more than the 2016 levels. This will support the APAC prices to a large extent and in spite of foreign suppliers having idle capacity, they wouldn’t be willing to cut down on its capacity in order to take advantage of the situation in China. Another factor that will influence the global markets will be the uncertainty around sanctions on Iran. India imports close to 600,000 MT of ammonia each year from Iran, nearly 75 percent of Iran’s overall production. Although the full impact of the sanctions is yet to be determined, the Indian buyers might start looking out for other players globally to ensure supply safety. Additionally, the availability of new supply worth more than 1 MMT/year ammonia from Russia is further expected to enhance ammonia availability. Some buyers in India and Europe are already in talks to tap into this new supply.
Overall, buyers can start exploring supply from multiple regions in 2019 as the new supply will alter trade routes and open new markets. According to recent industry estimates, nearly 20 to 25 million MT will be exported globally during 2019, which is way above the 2018 levels. The existing and new manufacturers will face challenges trying to push the extra volume into the market, despite the ramp-up in Chinese import demand, while the buyers will most likely have it their way in the negotiations. Spot market will be the major choice on the back of ample availability over the short term.