Global urea supply is relatively sufficient this year

At the 2023 Spring Nitrogen Fertilizer Market Situation Analysis Conference held in Jincheng, Shanxi in late February, Fu Tengyu, an analyst at S&P Global Agrochemical Consulting, stated in a review and outlook of the recent international urea market that global urea supply is relatively sufficient in 2023, and demand is expected to increase by around 1.7%. But the uncertain risks in the market remain, as Europe's natural gas supply, trade in the Black Sea and Baltic Sea, and the affordability of fertilizers will all have an impact on downstream demand.

From a policy perspective, firstly, Europe is continuously improving its carbon market construction, and this year's carbon tariff "boots" have been implemented, significantly increasing the carbon emission costs of traditional gas and coal urea production enterprises. Secondly, the European Union announced last year that it would suspend import tariffs of 6.5% on urea and liquid ammonia in 2023, but excluded sources of goods from Russia and Belarus. This means that in the coming months, Europe will expand its urea imports from countries and regions such as the United States, the Middle East, Nigeria, and Southeast Asia, thereby reducing Europe's import demand for North Africa, especially Egypt and Algeria, which is likely to put downward pressure on urea export prices in these two regions in the future. Once again, Russia issued a new fertilizer export tariff in December last year, imposing a 23.5% tariff on the portion of fertilizer export prices exceeding $450 per ton. It is expected that Russia's urea production cost will be around 160 US dollars per ton, and the new tariffs will ensure that its domestic production enterprises have sufficient export profit margins while expanding exports at lower prices.

From the market perspective, affected by the Russia-Ukraine conflict and western sanctions, Russia's urea export declined by 7% in 2022, but it is still the world's largest urea exporter, and its export volume is expected to gradually rise in 2023.

In addition, last year, the global urea production capacity outside of China reached 6.577 million tons, the highest level in nearly 8 years. Since the fourth quarter of last year, due to the recovery of natural gas supply, domestic fertilizer production in Europe has gradually resumed. Therefore, in the context of continued weak demand in recent months, the addition of new production capacity and the recovery of domestic production in Europe will greatly alleviate the supply tension and price upward pressure in the international mainstream urea market.

When reviewing the price changes in the global mainstream urea market over the past year, Fu Tengyu said that the price trend in the international urea market is relatively consistent with that of synthetic ammonia. That is to say, in the first half of 2022, due to supply shortages in Europe, urea prices in mainstream regions broke historical records. Egypt, as the main source of urea imports in Europe, saw its export price reach a high level of over $1000 per ton in March last year. But in the second half of last year, the market experienced significant fluctuations and gradually declined in the third quarter, with the lowest spot price of urea dropping to the level of $300-400 per ton.