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Viewpoint: Ammonia rally faces headwinds during 1Q

27 Dec 2017 13:00 GMT
Viewpoint: Ammonia rally faces headwinds during 1Q

Houston, 27 December (Argus) — Persistently tight global ammonia supply could support prices into the first quarter of 2018 before resumed production and added capacity in the US Gulf coast potentially bode for weaker prices.

Recent strength in global and domestic markets has been driven by reduced spot availability that should last until January and early February, when plants start coming out of turnarounds.

Three consecutive months of climbing prices in the Baltic and in the Middle East carried over into the US, pushing the Tampa contract up by $155/t from an eight-year low in August to $345/t cfr in December. US producers followed suit, issuing $35-42/st higher winter fill and spring prepay offers at inland distribution points in the Corn Belt.

But prices face headwinds during the first quarter as plants return from turnarounds and new production starts.

Saudi Arabia's Sabic ammonia plant (2.6mn t/yr) is scheduled to resume production in mid-December after a more than 80-day outage, while OPZ's 900,000 t/yr facility in Ukraine remains off line in its search for a gas supplier. In Algeria, Sorfert is expected to resume full ammonia production soon after completing repairs to its 770,000 t/yr export line, which has been off line since April. Indonesia's Panca Amara Utama plant is scheduled to begin production during the first quarter, adding 660,000 t/yr to the global market.

Global producer Yara starts its 750,000 t/yr ammonia plant in Freeport, Texas, during the first quarter of 2018. The plant was scheduled to be completed by the fourth quarter, but Yara could not be reached for confirmation at publication.

Freeport's added capacity is expected to add to already-growing exports from the US Gulf coast in order to balance the US market. Calendar year-to-date (January-October) ammonia exports have increased since 2014, reaching 529,673t in October — more than triple the volume from a year ago, according to US customs data. The bulk of the exports has come from CF Industries' Donaldsonville, Louisiana, plant, the largest in the US.

Added capacity at Freeport coupled with resumed global production likely spells an end for the rally in international and Tampa prices, and could trickle down to the inland US markets. Additionally, farmers who postponed winter fill and spring prepay orders are expected to wait on the sidelines prior to pre-plant applications in hopes offers fall to more attractive levels before securing spring nitrogen needs.

Anticipated demand for the spring is bullish as corn acreage estimates for the 2018-19 crop grew by 600,000 acres from the 2016-17 season to 91mn acres, according to the US Department of Agriculture. If realized, the added acreage would result in stronger end-user demand for nitrogen fertilizer. But long-term sustainability for higher ammonia prices remains unlikely as overall demand lags behind domestic production rates.