The US urea market's reduced dependence on imports could shake up traditional trade flows in 2017 as a spate of domestic expansions reach completion.
But the timing of the new supply's arrival will likely be the biggest factor affecting prices for the spring planting season.
Next year marks the end of a multiyear nitrogen plant building spree, including a $5.2bn expansion by CF Industries. The building plans have been fueled by the US shale boom and historically low natural gas prices. An oversupplied global market that led to key urea benchmarks hitting their lowest points in 12 years in 2016 has shelved other planned greenfield US plants for the time being.
US granular urea prices bottomed out in the $160s/st fob Nola in July 2016, the lowest since 2004.
In early 2017 the market will focus on Port Neal, Iowa, where CF's new 1.35mn st/yr urea plant should begin production soon, according to the producer's last update in November. If that ends up being January, then Port Neal supply will play a factor during the spring and could add pressure to urea prices prior to the peak nitrogen season.
If start-up is closer to the end of the first quarter, the supply's effect will be felt more during the summer shoulder season.
Beyond CF's expansion at Port Neal, 2017 will also see new urea capacity come online at OCI Iowa Fertilizer (Wever, Iowa); Koch (Enid, Oklahoma); Agrium (Borger, Texas) and Dakota Gas (Beulah, North Dakota).
Much of the new capacity is located in the US interior near key consuming regions, which could lead to a change in traditional trading patterns. Typically, key wholesale river markets near the Corn Belt are priced at Nola plus freight and margin. But more production is now located at inland locations which will likely trade at a discount to the Nola netback, a trend that already happened temporarily in the fall in the Northern Plains.
Nola imports will remain important, especially in the early part of 2017. Delayed buying down the supply chain pushed Nola prices low and failed to attract typical import volumes during the first half of the 2016-17 fertilizer year. From July to January, the US is set to import 700,000t less than during the same period a year ago, according to customs data and Argus estimates. Even after factoring in new domestic production, that leaves a sizable gap in needed import tonnes to meet spring needs.
Nola barge prices have seen volatility in recent weeks, largely as a result of the international market. US prices moved above $230/st fob Nola in November on tighter-than-expected supply, but fell back to around $215/st fob Nola in early December after India canceled a major purchase tender. India and the undersupplied US will be the key markets in determining global price direction in the early part of 2017.
