The primary objective of the Nitrogen Cost and Profit Margin Service is to present comprehensive industry supply curves for the main nitrogen products: ammonia, urea, AN, UAN and CAN. On each supply curve we show:
- Sales volumes
- Cash cost of production per tonne
- Average price achieved per tonne
- Gross margin per tonne
For each nitrogen product, we have identified a representative sample of companies and our primary approach is to begin with “top down” company analysis, which we complement with “bottom up” analysis.
We also combine cost curve analysis with supply curve analysis – cost curves alone only tell part of the story, incorporating supply curve analysis allows us to show the true competitive position. This demonstrates why low costs of production do not always mean high profits. We use the latest 2012 industry data, and deliver 10-year scenario-based forecasts that are unmatched in robustness and reliability.
Analysis of company specific reported financial information…
For each company, we obtain, wherever possible, nitrogen capacity by product, production and sales volumes, product prices, raw material prices and profit and loss financial results.
We use this information to draw out the product volumes and values that underline each company’s revenues, cost of sales and gross profits. For some businesses, where there is one product line, or where the company presents detailed product by product information, this is a relatively simple exercise.
In most cases, we use constructed estimates based on our understanding of product prices, which we use to determine company netback prices and estimated ex-works production costs constructed from our knowledge of market raw material prices, production technology, efficiency and so on. We have tried to exclude freight wherever possible.
In some cases, companies produce a suite of different nitrogen products and combine the results into one business segment including revenues, costs and profits across the product range. Often in these cases, we have calculated prices for each product and used the whole business segment’s profit margin percentage applied uniformly to calculate product by product costs and margins.
Bottom up calculations bridge the gap between prices and margins…
We also apply a bottom up methodology to companies for which we are able to make an assessment on production costs and dynamics, but where product specific financial information is lacking. In each region we also provide calculations to represent a “typical” producer, taking into account the local energy and nitrogen market dynamics.
We then look at what distinguishes the most profitable producers from the least profitable, exploring how raw materials production costs, efficiencies, location and sales prices influence profitability. We also build up a future nitrogen supply balance based on our analysis of global greenfield and brownfield nitrogen project activity, which we combine with demand projections to examine how the future market supply/demand balance is likely to develop. By combining this with our thorough knowledge of production costs, we prepare price forecasts for the key nitrogen products.