The Integer View 17 November 2016 – China Nitrogen Cost Analysis; OCP and Kribhco to form NPK plant; Value Added FertilizerPosted On: 17-11-2016 By: Grahame Turnbull
Chinese nitrogen costs: gas up, coal up or down?
By Oliver Hatfield – Director of Fertilizers and Chemicals
Explanations for the recent modest uptick in urea prices are varied. A seasonal tick up in urea demand is important but the role of China as a swing supplier means Chinese production costs are the main focus of attention. The best way to understand these costs is of course to make sure you have a copy of Integer’s study, which includes detailed analysis of Chinese urea costs, and a model allowing you to run alternative coal/gas cost assumptions to calculate likely urea export volumes!
Two recent energy market developments have caught our eye, giving us fuel (forgive the pun) to run alternate scenarios. As one of several measures targeted at making the gas sector more transparent, China’s National Development and Reform Commission (NDRC) is reported to have liberalised gas prices to the fertilizer sector from 10 November. Since much of China’s gas-based urea capacity is already struggling, the impact of this measure on the international urea market is likely to be relatively insignificant. In addition, since most of China’s urea capacity is coal-based, coal market developments tend to have a more profound urea market impact.
Government measures introduced to the coal sector earlier this year to deal with the structural over-capacity in coal production have had a significant effect on coal prices, until now. A directive to reduce the number of days per year that coal mines can operate from 330 to 276, has shortened the market, driving up the price of coal, coking coal in particular. The rise in coal costs has in turn squeezed Chinese coal-based nitrogen producer margins, forcing operators to further idle capacity, and effectively raising the urea export price floor. This has been helpful for international urea producers elsewhere.
However, this glimmer of positive news may well be short-lived. A week ago reports indicated that limits on coal output would remain in place until March, but this week it has been reported that curbs will be reversed. The NDRC is now saying mines will be allowed to go back to production rates of 330 days per year until March. In addition, it has been reported that the coal supply surplus will be alleviated by allowing increased exports. If implemented, this would likely bring a direct and parallel effect on the urea market.
OCP and Kribhco to form Indian NPK plant
By Ibi Idoniboye – Phosphate Analyst & Leader of NPK Analysis,
Morocco’s integrated phosphate giant OCP has signed a 50:50 joint venture with Indian nitrogen fertilizer producer, Kribhco, to develop a US$230 million greenfield NPK plant in India. The complex is expected to have 1.2 million tonnes capacity, sourcing phosphoric acid from OCP’s operations in Morocco.
This marks the continuation of OCP’s efforts to expand beyond its business down the value chain, targeting new products, new partnerships and shifting the point of sale closer to the buyer. For Kribhco, the project would be its first venture beyond nitrogen. Its existing assets are around 3 million tpy of urea in the state of Gujurat.
Nitrogen in the form of ammonia, and potash for the plant which will be constructed in Andhra Pradesh, will presumably be sourced on the international market. If you’d like more information on the Indian NPK market, we recommend a subscription to our recent NPK dataset.
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Singapore – 15th-16th February
Capitalize on opportunities in the specialty, NPK compounds and micronutrient sector by attending the Value Added Fertilizer Summit Asia 2017 – and get a $400 discount if you book your place before 30 November 2016.
The summit covers topics relating to all major value-added sectors, including:
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