Nitrogen is the most important primary nutrient for all crops. In 2017, the nitrogen segment was valued at USD 67 billion. The segment is expected to witness a CAGR of 3.1% during the forecast period. Owing to the growing concerns about nitrate leaching in the soil, the growth rate is steady. The urea segment accounted for 57% of the total demand for nitrogen fertilizers in 2016. Owing to the increase in the global demand for grains and cereals, the segment is estimated to witness a CAGR of 3.5% during the forecast period. Owing to oversupply from new nitrogen capacities in many countries (mostly around the Gulf region), urea prices declined in 2015 and 2016. The trend is expected to continue in the coming years. Urea producers have been aided by the decline in feedstock gas and coal prices in 2017. However, margins have still diminished.
Increasing Price of Urea in the Global Market
Nitrogen prices have rallied in the global market since July 2017, owing to increase in urea prices by around 50%. In 2017, as urea exports from China decreased and imports of urea in India increased, the global supply and demand balance tightened. In March 2015, the Chinese Ministry of Agriculture (MOA) announced that China will launch a zero-growth campaign for fertilizer consumption by 2020. According to the program, China will reduce or control nitrogen and phosphate fertilizer consumption, stabilize potash consumption, and increase secondary and trace element demand.
In 2018, it is estimated that India’s urea demand may face some risks. The Direct Benefit Transfer program will provide the urea subsidy to the grower at the point-of-sale, as opposed to being provided to the upstream distributor. In addition, the Indian government has indicated that the allowable urea bag size will be reduced, which may negatively impact the application rate of urea, in turn affecting the producers’ margin. Companies may have to consider strategies to reduce the production cost, in order to maintain the margin percentage in 2018.
— Profercy (@Profercy) October 11, 2016
Urea and the US Market
Urea trade balance in the United States remained positive between June and August 2017. Exports of urea increased by 5%, as compared to total imports, owing to low seasonal demand. However, it is forecast that the country may face urea deficit in early 2018, due to less stock of urea, as it imported less quantity of urea in 2017. This may increase the demand and the prices of urea in the global market.