AN: Regulation will limit nitrate supply in Brazil

New restrictions on trading and importing both ammonium nitrate and nitrate-based fertilizers to Brazil will likely have major impacts on Brazil's domestic nitrogen mix from 2019.

Ordinance nº 42 by the Brazilian Army Logistics Command, published on 28 March, sets out new, tighter regulations on the trading, handling and storage of AN which are likely to lengthen the import process as well as adding costs. But, more significantly, this regulation also applies to any fertilizer containing nitrogen in nitrate form — expanding its remit to include products like stabilized ammonium nitrate (SAN), calcium ammonium nitrate (CAN) and nitrate-based NPKs.

The new legislation requires blenders, plants and resellers to have a license to purchase AN, but exempts farmers from this requirement. Market participants must comply with the new legislation by March 2019.

Previously, import and storage restrictions only affected traditional AN, which encouraged buyers to pay a premium for other varieties.

"The main impact of the new legislation will be on the supply of AN, which will become more restricted as fewer participants will obtain the necessary licenses to import, sell and distribute the product," said the president of a blender in the Southeast region.

Brazilian AN buyers, mainly coffee, sugarcane and orange farmers in the Southeast region, prefer to apply AN to their crops because of the lower nitrogen volatilization compared to urea, the usual substitute for AN. The mandatory specifications for storage of AN next year will change the demand profile, but opinions on the likely impacts vary.

"Traditionally we buy stabilized AN because of the ease of storage and it is currently unregulated," said the inputs manager at a large cooperative in the Central-West. "If we need to invest in upgrading warehouses, we will shift to pure AN, as it will no longer make sense to pay a premium for the stabilized variety."

An executive at a fertilizer distributor operating in the Central-West and Southeast regions has a different take. "A lot of our buyers are small and will buy urea encapsulated with volatilization reducers instead of investing in their warehouses because of the high cost of adapting stocks," he said.

Brazilian demand for AN has stagnated this year, with the result that spreads between AN and urea have compressed since January — such that AN is cheaper than urea in terms of dollars per tonne of nitrogen ($/t N). The spread was -$45/t at the end of June, while a year ago it was $78/t, according to Argus price assessments for AN and granular urea cfr Brazil (converted into $/t N). Historically the spread has averaged $103/t.

The impact of the new legislation on supply and demand for AN in the Brazilian market will only be felt in 2019.

Brazilian purchases of AN from January to May fell by more than 50pc year-over-year to 490,000t, one South American blender says. But this was because of a high comparison base last year, when buyers imported more volumes of AN for fear of shortages following a fire at Vale's nitrate production plant in Cubatao, in January of that year, according to Anda, Brazil's national fertilizer-industry association.

Brazilian demand for all fertilizers has been limited by the volatility of the US dollar since January — imports for January-May are down by 11.5pc year-over-year to 8.2mn t, according to Anda.