Increased Global Urea Production May Create Buyer's Market

March 22, 2013 09:03 AM
 

New research from Rabobank forecasts increases to global urea production capacity will swing urea pricing toward a buyer's market starting in 2015. Expansions in the U.S., Brazil and India along with supporting supplies coming from the Middle East and Africa (MEA) will significantly impact the supply/demand balance in favor of the end-user.earth and north america from space digitally restored 1 l

"Attractive returns in urea production have resulted in a spurt in capacity expansion projects since 2007," Rakhi Sehrawat, Rabobank analyst, commented. "Over 65 new projects have been announced that will expand global urea capacity by 30 percent between now and 2020. This rush of activity on the supply side will have a strong influence on the urea demand/supply picture in the coming five to ten years."

Urea producers who have access to downstream outlets and can manage production fluctuations based on demand will be in the best position to profit from the upcoming buyer's market. For high-cost producers it means they would need to strengthen their market position through cross industry partnerships and downstream integration closer to farmers. As reliance on imports in the main urea destination markets declines and low-cost export-oriented production capacity grows, competition among the traditional players will intensify, resulting in price pressure and capacity adjustments in high-cost regions.

Saudi crude production is a good example of 'flex' production. Among OPEC nations, Saudi Arabia is known to leave themselves some headroom in production capacity and rarely produces at or near capacity, adjusting as the market dictates. Urea producers have a lot to gain from an understanding of this. A market flooded with urea could work as a double-edged sword -- on one hand, a healthy supply of nitrogen based urea would lower prices for growers, but threatens to thin margins for urea producers. This highlights the importance of flex production and savvy producers will look to produce at varying levels based on demand.

Increased urea production capacity worldwide is expected to lower the cost of urea for the end user, and if the price is right, this form of nitrogen has the potential to dethrone costly and hazardous anhydrous ammonia as the N of choice for growers.

Click here for more from Rabobank


Photo credit: IronRodArt - Royce Bair ("Star Shooter") / Foter.com / CC BY-NC-ND

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