The financial performance of nitrogen producers in 2012 was almost exclusively dictated by changes in local energy market conditions, the latest issue of Integer’s Nitrogen Cost and Profit Margin Service reveals.
Increased gas prices in the Ukrainian market caused the country’s nitrogen producers to post universal losses in 2012, across all nitrogen products. The government increased the official wholesale gas price to industrial users in 2012.
It’s likely that due to favourable ownership, some nitrogen producers were able to access gas cheaper than the official price, but losses were still reported by all companies profiled in Integer’s Nitrogen Cost and Profit Margin Service.
Nitrogen production based on gas at the official price makes the economics of continuing nitrogen production in the country challenging, especially as most product is exported. Recent reports suggest that Ukrainian producers are operating far below capacity and have been idling capacity during 2013 in response to weak export markets.
The developments in Ukraine were in contrast to its close geographical neighbour, Russia, where nitrogen producers reported healthy margins in 2012.
North America has undoubtedly been the success story of the nitrogen industry in recent years, and 2012 was no different. Producers benefited from a continuation of low gas prices as the rapidly developing gas sector remains in a shale-driven surplus. The region also became the focus of global nitrogen investment projects in 2012, with domestic and international companies alike hoping to cash in on the favourable nitrogen production economics.
Elsewhere, Chinese urea production continued to be defined by the government composed export restrictions in 2012, and evolving production economics. As a result, production remains below full utilisation and Integer estimates that around 20 million tonnes of China’s highest-cost urea capacity was effectively idled in 2012. However, the situation is dynamic and exports in the 2013 window are ahead of 2012 at the time of writing, with cheaper anthracite making export growth possible.
The MENA region remained the most profitable region globally, despite increased gas costs in countries like Oman, and heavily reduced production in areas suffering from political instability such as Libya and Egypt.
The Pakistani nitrogen industry continued to be hampered by domestic natural gas shortages in 2012. Unit production costs increased significantly between 2011 and 2012 with the most heavily affected urea plants being those served by the Sui gas field. However, the real concern remains the shortfall in nitrogen production and a sizeable supply gap.