Ammonia prices at bottom of cycle following massive capacity additions

20:27 PM | June 4, 2020 | Natasha Alperowicz

Worldwide ammonia demand reached 181.6 million metric tons (MMt) in 2019. Almost 75% of the total was used in fertilizer production including urea, nitrates, phosphates, and direct ammonia application. About 25% was used to make other chemical products including industrial-grade urea and nitrates, caprolactam, acrylonitrile, hydrogen cyanide (HCN), and nitric acid, says Georgy Eliseev, principal analyst/ammonia at Fertecon, the agri business of IHS Markit. Caprolactam production consumes 5 million metric tons/year (MMt/y) of ammonia worldwide, acrylonitrile consumes 3 MMt/, and HCN consumes 500,000 metric tons/year.

Eliseev says the price of ammonia is now at the bottom of the cycle, following massive capacity additions in 2016-19 including three large merchant ammonia projects at Freeport, Texas; Kingisepp, Russia; and Luwuk, Indonesia. According to Yara International (Oslo, Norway), a major producer and merchant seller, the average price for commercial ammonia in the first quarter of this year was $222/metric ton fob Black Sea, down from $226/metric ton in the fourth quarter of 2019 and $272/metric ton in the first quarter of last year.  The year-on-year decrease is attributed to larger exports of ammonia from Russia and Southeast Asia, and the decrease in global energy prices.

The price of ammonia and related fertilizers has been falling since 2014, but the extent of price volatility has declined, Eliseev says. The causes of the price slippage include a significant reduction in natural gas prices as well as a major capacity build-up in ammonia. “The fall in oil prices in March 2020 creates a new challenge to international gas prices, which are now under new pressure,” Eliseev says.

EuroChem (Zug, Switzerland) commissioned in June 2019 a $1-billion, 1-MMt/y ammonia plant at Kingisepp, near St Petersburg and close to Russia’s border with Estonia. The new plant will supply about 250,000 metric tons/year of ammonia that had previously been sourced from a third party, for EuroChem’s Antwerp, Belgium, fertilizer complex. Some of the ammonia also goes to the company’s Lifosa operations in Lithuania and some to Phosphorit, an adjacent phosphate fertilizer facility at Kingisepp. Since the commissioning of the plant, EuroChem has awarded an engineering contract to Maire Tecnimont for preliminary work on potential additional ammonia and urea facilities at Kingisepp.

Yara, which last year produced 7.7 MMt of ammonia, says the market is oversupplied and that some capacity curtailments are required. Margins for high-cost producers are slim, and low natural gas prices in Europe and elsewhere have altered the relative competitiveness of ammonia producers worldwide. With very low gas prices and an ammonia deficit in Europe, Western European producers are among the lowest on the global cost curve in delivered-cost terms, Yara says.

A number of producers have closed ammonia facilities. Yara announced in November 2019 the permanent closure of its 270,000-metric tons/year ammonia plant at Point Lisas, Trinidad, one of three ammonia plants operated by the Yara Trinidad joint venture with National Enterprises Ltd. (Port of Spain, Trinidad). The remaining two plants, Tringen I and Tringen II, continue to operate. Nutrien, a major fertilizer producer, idled one of its four ammonia plants in Trinidad in May, saying that the 600,000-metric tons/year facility would be out of action for at least three months. 

Eliseev expects fewer ammonia plants to be built in 2020-23 including only one merchant plant, a 330,000-metric tons/year unit at Salalah, Oman. The next wave in the period ending 2024 will see the commissioning of the 1.3-MMt/y Gulf Coast Ammonia (GCA) facility at Texas City, Texas, and the 1.1-MMt/y Ma’aden 3 ammonia plant at Ras al-Khair, Saudi Arabia. The Ma’aden plant is due online in 2022 and the GCA plant in the following year.

Demand growth, although slow, could theoretically start absorbing the excess capacity, leading to a rebalancing of the market. “However, the COVID-19 pandemic is expected to have a dramatic impact on demand growth, with the petrochemical segment particularly hard-hit, both by restrictions during the pandemic itself and by the economic slowdown that will follow,” Eliseev says. Fertecon’s short- and long-term forecasts are currently being revised to take account of the pandemic’s impact on the world economy.

Eliseev notes that recent capacity additions were not driven by demand for ammonia but by pressure to add value to natural gas by converting it to readily saleable and transportable products such as ammonia and methanol, as well as liquid fuels via the gas-to-liquids process.

International trade in ammonia accounts for about 11% of total consumption. The rest is consumed internally within integrated downstream manufacturing sites. “Ammonia could also be used as fuel, and we can expect in the near future growth of ammonia used as fuel, for example in ships,” Eliseev says.

India and the US are the largest importers of ammonia. However, US imports have decreased due to the expansion of domestic capacity. “In 2018, the US was the largest importer with 3.1 MMt, but last year imports dropped to 2.5 MMt,” Eliseev says.