Curtis Williams
Lead Editor Business
curtis.williams@guardian.co.tt
Expect continued high prices for ammonia over the next five years predicts Ken Seitz, the interim President and Chief Executive Officer of Nutrien.
Nutrien is T&T’s largest ammonia producer.
Speaking recently at the company’s virtual investor update, Seitz joined the Nutrien’s Chief Economist Jason Newton and its Vice President and CEO of Nitrogen and Phosphate, Raef Sully, who all painted a picture of elevated ammonia prices, but warned it will also mean higher costs for grain and seeds globally.
Sully explained, “We are expecting the ammonia production deficit in the conventional merchant market to persist through to 2027, even without the war in Ukraine… The global ammonia market is approximately 170 million tonnes per year, and growing at a rate of two and a half to three million tonnes per year, however over the next five years there is likely to be a deficit in the conventional market of 8 million tonnes and that is before the impact of the current conflict in the Eastern Europe, and new potential uses of ammonia are added in.”
He continued, “Nutrien is well positioned to be first in adding incremental capacity to meet demand in both the conventional market and the new and emerging markets. We have the ability to provide clean ammonia at competitive costs and as we look at the potential development of these new markets we see three areas of significant opportunity.”
Those Sully said include power generation and transportation.
But why would prices remain so high for so long? Why is the traditional ability to bring on additional supplies not taking place? Well according to the Nutrien executives it is because of concern about the carbon footprint and the focus on reducing it be producing green ammonia.
Seitz said, “We expect supply challenges across energy, agriculture and fertiliser markets to persist well beyond 2022. We expect higher natural gas prices in Europe will set the floor for nitrogen products and will support the need for greater capacity in lower costs regions such as the USA. We expect new nitrogen supplies to come from producers that have the ability to reduce the carbon intensity of the product and anticipate new demand sources will emerge for low-carbon ammonia across a broad cross section of sectors. We believe the current tightness between global crop supply and demand balances are unlikely to be resolved in one or two growing seasons, providing for a prolonged period of supportive crop prices and margins for the grower.”
Sully explained that to meet the need for ammonia with a reduced carbon footprint Nutrien is looking at a number of things including co-generation and renewables at the different sites where it currently operates.
It is also considering the production of electricity through steam generation, wind and solar power.
Nutrien’s chief economist said on a short-term basis the fundamentals for energy crop and fertiliser markets are supported by tight supply/demand balances and the impact of the conflict in Ukraine. Longer-term there are several structural supply and demand factors that Nutrien believes will continue to provide support to crop energy fundamentals.
He pointed out that the inventories of major grains have been drawn down over the last couple of years, driven by supply challenges in major global producing regions and the increase in demand.
Some of the demand Newton explained has been driven by the emergence post lockdown but also Chinese demand post control of the swine flu, in addition to the increased demand for bio fuel.
He projected that higher global energy prices, reflecting what he thinks will be a step change in the prices, to reflect the increasing isolation of Russia and will be accompanied by declining fertilizer production out of Russia in the short-term with reduced access to the Black Sea leading to significant decline in Russian exports of fertilizers.
“Given the supply constraints for Europe and Russia we expect a tight supply demand balance constraints past 2023....There is a need to add more nitrogen and potash production and we are therefore predicting the ten-year mid-cycle average price plus $50 projection for potash and nitrogen prices.” Newton explained.
While the higher ammonia prices will lead to more revenue for the government and the country, as T&T is one of the world’s largest exporter of ammonia, it will mean prolonged, if not permanent higher prices for wheat and other grains.
Newton noted that this year grain prices are running higher than the 10 year average and it is the second consecutive year this has occurred. He said the other two times this has happened in the last 50 years were in the 1970s and the 2006/2008 periods. Both times the higher prices became structural.
He said the lowering of nitrogen prices recently in the USA is not a reflection of the market fundamentals but rather the poor start to the planting season in North America and the good supply chains.
“We expect higher than normal price volatility to continue and as the impact of the constraints in eastern Europe are felt, higher pricers will return in the second half of 2022.” Newton added.
Newton pointed out that with the world moving to reduce its carbon footprint there is likely to be continued demand for crops to be used as biofuel. This could keep both crop and inputs like ammonia prices high over the long term.
