A surge of new US granular urea production capacity could reshape trade flows for the second half of 2017, raising questions about how key pricing hubs will evolve.
The transformation of the US market will be fully realized during the 2017-18 fertilizer year that began in July. The final two major urea expansions — Koch's Enid, Oklahoma, and Dakota Gas' Beulah, North Dakota, plants — are projected to be online by the end of the year. This would conclude an era of extensive new capacity additions that will reduce US reliance on imported urea and has already led to a boom in nitrogen exports.
That dynamic has fueled debate about the future and relevance of the key Nola granular urea market. Nola has long-served as the barometer for the US urea market, generating consistent liquidity because of a steady stream of contracted and spot imports. But that status has now come into question with multiple new major urea production points inland and closer to end users, allowing buyers to side-step the traditional Nola supply chain.
More urea sales are being done on a delivered basis, sourcing directly from production points or key distribution hubs. This has been most apparent in the Northern Plains, the heaviest urea-using region in the US that has seen an uptick in seller competition. Prices for unit train shipments reached as low as $195/st delivered for summer fill in July, equivalent to $145-$150/st fob Nola, according to market participants. The actual Nola market bottomed out at a 13-year-low of $158/st fob Nola in late June, making competing with delivered business difficult for suppliers sourcing tons from the river.
The reshaped market has already impacted the distribution hub of Inola/Catoosa in Oklahoma. Wholesalers there are devoting more dry warehouse space to other products, like phosphate and potash, and less for urea for the upcoming fertilizer year because of the impending start-up of Koch's new 900,000 st/yr urea plant at Enid, just 120 miles away.
Liquidity has also been affected at Nola, with low prices discouraging imports.
Nola urea imports were mostly stable during the first part of 2017, totaling 2.6mn t from January-May, down by just 66,000t from the same time in 2016. But imports quickly dried up during the summer, with only an estimated 203,000t expected to be imported from June-August, compared to 361,000t in 2016.
Import programs from major offshore suppliers in Saudi Arabia and Qatar will start back up in September, but the amount of spot imports remains uncertain. Nola prices have not offered traders favorable netbacks compared to other markets, even with the recent rebound in prices to the mid-$180s/st fob.
Further clouding the Nola outlook has been the emergence of urea exports, either directly from CF Industries' Donaldsonville plant or from traders re-exporting barges. The US exported an estimated 350,000t in June and July, underscoring how the Nola market can now flip to exports in times of low domestic demand.
Market participants widely acknowledge that Nola will remain a key pricing indication for the US. But just like US urea suppliers, the benchmark will face more competition from other domestic points moving forward.
