Home Page ꄲ Industry News ꄲ [Domestic News] Global Growth Limited in 2023, Urea Market Sentiment Still Positive

[Domestic News] Global Growth Limited in 2023, Urea Market Sentiment Still Positive

The addition of new international urea facilities is difficult to quantify, but it has a significant impact on the annual supply and demand balance of urea for the year 2024. The purpose of this article is to gain a deeper understanding of the future changes in international urea production capacity and specific circumstances. Through our analysis and summary, we have found that:

1.In the context of countries around the world striving to ensure their own food production security, the importance of fertilizers as a vital component of food supply has escalated to the level of national strategic security. Furthermore, reducing urea imports from abroad not only conserves foreign exchange reserves but also creates local employment opportunities, serving as a secondary objective for nations.

2.Based on the currently known production facilities, the global urea production is accelerating, and the situation of global urea oversupply may become more apparent after 2024. If demand growth does not keep pace with the increase in production, global urea prices may come under pressure once again.

3.After 2024, the main additions to the supply of urea are expected to come from the Middle East, Russia, and North Africa. Some countries in Southeast Asia are also starting to establish new urea production facilities, particularly India, a major importer of urea. It is projected that after 2025, India's dependence on urea imports from China will see a significant decline.

4.Urea production abroad is predominantly derived from natural gas, with the long-term supply and pricing of natural gas significantly influencing the global urea supply. According to current theoretical estimates, European urea production facilities are operating around the breakeven point in terms of profitability, while American urea production facilities are experiencing favorable profitability.

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Risk Advisory: Fluctuations in international natural gas prices; fluctuations in domestic coal prices.

01 In 2024, global urea production capacity will further expand.

In the context of countries worldwide striving to ensure their own food production security, the importance of fertilizers, as a cornerstone of agricultural productivity, is increasingly prominent. It is projected that global urea production capacity will reach 229 million tons in 2023, showing a year-on-year increase of 2.04%. Among them, China will contribute 4.38 million tons, marking a 5.29% increase compared to 2022, while the rest of the world will produce 540,000 tons, totaling 4.92 million tons. In 2024, there is a considerable increase in global urea production capacity, with a total increment of 6.614 million tons, representing a year-on-year growth of 2.88%, resulting in a total capacity of 236 million tons.

Data Source: Bloomberg

From 2021 to 2022, there was a significant increase in global urea production capacity, with approximately 14 million tons of additional capacity being introduced. This accounted for 7% of the total capacity of 200 million tons. The gradual release of capacity pressure following the capacity expansion, coupled with the decline in energy prices (primarily natural gas feedstock) after the easing of the Russia-Ukraine conflict, directly resulted in a substantial decrease in international urea prices in 2023.

Data source: Bloomberg, Reuters

From 2023 to 2026, the commissioning of new international urea production facilities has been primarily concentrated in countries such as Asia, Russia, Egypt, and Nigeria, with minimal capacity expansion observed in European and American nations. Particularly noteworthy is Russia's deployment of three facilities totaling 2.8 million tons, effectively augmenting the supply to major importing countries.

Data Source: Bloomberg, Reuters

02 Global Situation of Urea in Various Countries

Currently, the top ten countries in terms of global production capacity are as follows: China, India, the United States, Russia, Indonesia, Iran, Egypt, Pakistan, Nigeria, and Qatar. Based on the most recent available data, we have compiled the relevant information on urea production for each of these countries.

Data source: IFA

（1）China: New Production Pressure Remains

In 2023 and 2024, domestic production is projected to increase by 4.35 million tons and 2.12 million tons, with growth rates of 5.8% and 2.7% respectively. While there is still pressure on production capacity, some facilities expected to come online by the end of the year may be postponed to the following year.

Data sources: Longzhong Information, Baichuan Information

Due to the implementation of the quality inspection policies in October 2021, the domestic urea exports were only around 2.83 million tons in 2022, a reduction of nearly 46%. It is anticipated that with the gradual relaxation of domestic quality inspections in 2023, the export volume could reach over 3.5 million tons, an increase of approximately 25% year-on-year.

Data Source: Wind

China's urea is primarily exported to neighboring countries in Southeast Asia, with India, Pakistan, as well as countries like Australia and Mexico being the main destinations. Among them, India accounts for the highest proportion, reaching 43%, significantly impacting domestic exports. The export volume this year is 2.8312 million tons, which is a decrease of nearly 46.5% compared to last year's 5.2946 million tons. Among these, India remains the top destination country, constituting 43.798% of the total export volume.

Data Source: United Nations Commodity Trade Statistics Database

（2）India: Domestic Urea Supply and Demand Gradually Achieving Tight Balance

Looking at the production schedules beyond the year 2024, traditional agricultural powerhouses like India and Bangladesh have been actively establishing domestic urea manufacturing facilities. Particularly noteworthy is India, where only one 1.27 million-ton coal-based urea unit remains slated for production in October 2024. Despite official Indian claims about not needing urea imports beyond 2025 (though the accuracy of this claim remains to be verified), a gradual reduction in imports appears increasingly likely based on India's domestic urea supply-demand balance.

Data Source: Indian Ministry of Fertilizers

（3）United States: The World's Third-Largest Urea Production Capacity Country

In 2021, the United States had a urea production capacity of nearly 12.88 million tons, encompassing both solid urea and urea ammonium nitrate solution (UAN). The primary sources of urea imports for the United States were from the Middle East, including Qatar, Oman, and Saudi Arabia, as well as African countries such as Algeria and Nigeria, along with Russia. However, the United States also engaged in urea exports, primarily to Europe, including countries like the United Kingdom and Lithuania.

Data Source: Nutrien

Since 2015, the annual application of urea in the United States has experienced significant fluctuations. Starting from 2017, it began to rebound, reaching a usage of 4.88 million tons in 2019. Despite the recent impact of the COVID-19 pandemic and the Russia-Ukraine conflict, the recovery trend remains evident. On one hand, the annual production capacity of urea in the United States has increased, with new facilities gradually coming into operation and capacity utilization improving. On the other hand, the cultivation area of crops such as corn, wheat, soybeans, and cotton has expanded, leading to an increased demand for fertilizer.

Data source: Food and Agriculture Organization of the United Nations

The United States is one of the largest importers of urea in the world, with an import volume of 6.2681 million tons in 2021. In contrast, the export volume of urea from the United States in 2021 was only 0.3128 million tons. According to data from the U.S. Department of Commerce, in 2021, the United States imported urea ammonium nitrate fertilizer worth $262.6 million from Russia. In July 2022, the U.S. International Trade Commission decided to revoke the high anti-dumping and countervailing duties (with a tariff rate as high as 132.6%) imposed on Russian fertilizer (urea ammonium nitrate fertilizer).

Data source: FAO

（4）Russia: The World's Largest Urea Exporter Holds Significant Global Influence

After the outbreak of the Russia-Ukraine conflict in 2022, concerns initially arose internationally about the potential disruption of Russian fertilizer exports, specifically urea exports. However, based on the available information, the primary impact has been on global trade dynamics. Russia has continued to supply urea to the world using its abundant and inexpensive energy resources. According to IFA data, in 2021, Russia exported 7 million tons of urea, contributing to the global urea trade volume of 50 million tons, which accounted for around 14% of the total global trade. Approximately 40% of Russia's urea exports (2.8 million tons) were destined for Europe, making this trade flow significant.Although the Russia-Ukraine conflict of 2022 initially triggered concerns about fertilizer exports, Russian fertilizer products were not directly subjected to sanctions. In 2022, Russia actually increased its urea exports by 12% compared to 2021, reaching 7.9 million tons. The impact of the conflict was more pronounced in reshaping the global urea trade patterns. More of Russia's fertilizer exports found their way to India, with Russia becoming India's largest fertilizer supplier in 2022. Russia's share of India's fertilizer imports grew from 4% in 2021 to 22% in 2022, while China's share decreased from 37% to 15%.Russian urea also found its way into Western countries such as the United States, the Netherlands, and Germany. In contrast, the flow of Russian fertilizer that used to be directed to Europe was redirected via the United States and Turkey, reaching Europe as well as supplementing Southeast Asian and Middle Eastern markets.

Data source: IFA

Data source: Bloomberg

From the perspective of Russia's urea export value in 2021, the main importing countries are Brazil, Finland, the United States, and others. The proportion of 'other' countries is relatively significant, but specific data is lacking. It can be speculated that these may include countries from Europe, the Americas, and Southeast Asia.

Data Source: Bloomberg

（5）Indonesia: Asia's Second Largest Exporter to Undergo Production Capacity Replacement by 2026

According to official data from Indonesia, we have compiled information on five urea production companies in Indonesia. The specific plant capacities and operational details are as follows. In 2023, Indonesia has a total urea production capacity of 9.3625 million tons, making it the fifth-largest urea-producing country globally. Domestic urea production capacity is still expanding. PT Pupuk operates two units, Pusri III and Pusri IV, which were established in 1975 and 1977 respectively. Due to their aging equipment and relatively high natural gas consumption, these units are expected to be decommissioned in 2026, with the new Pusri 3B unit replacing the two old ones. This might lead to a slight reduction in Indonesia's production capacity to 9.13 million tons. Looking at imports and exports, in 2022, Indonesia exported 1.8 million tons of urea. The major export destinations were Australia with 373,000 tons, followed by India with 313,000 tons. Additionally, Indonesia exported to several Southeast Asian countries, including the Philippines (204,000 tons), Malaysia (66,200 tons), Vietnam (55,900 tons), Thailand (47,000 tons), and Myanmar (38,000 tons).

Data Source: Indonesian Pupuk

（6）Egypt: The world's fourth-largest exporter of urea, with a production capacity reaching 7.57 million tons by 2025.

Egypt possesses nine factories with a combined urea production capacity of 7.3 million metric tons in 2023, inclusive of an additional 380,000 tons from new installations that year. In 2021, Egypt's urea production stood at 6.7 million metric tons, accounting for approximately 4% of the global output of around 170 million metric tons. Domestic consumption amounted to 3.5 million metric tons, while urea exports reached 4.5 million metric tons, constituting about 9% of the global trade volume.

According to information from the Misr Fertilizers Production Company (MOPCO), there are plans to expand the annual urea production capacity to 700,000 tons by 2025, resulting in a daily output increase of 195 tons. Furthermore, by 2025, Abu Qir Fertilizers is preparing to ramp up production by an additional 200,000 tons, leading to a total Egyptian urea production capacity of 7.57 million tons per year.

（7）Bangladesh: After the new facility comes into operation in 2024, import dependency decreases from 59% to 25%

In 2022, Bangladesh had four factories producing urea with a total capacity of 1.05 million metric tons (originally 2.231 million metric tons capacity, but due to natural gas shortages and operational issues at two factories, Jamuna Fertiliser Company and Chattogram Urea Fertiliser, there was a loss of production capacity and a decrease in output). The domestic demand for urea was 2.6 million metric tons per year, of which 60% (approximately 1.5 million metric tons per year) was met through imports. Additionally, the government ensures an annual safety stock of 700,000 metric tons to mitigate fluctuations in domestic urea prices.

The Bangladeshi Ministry of Industries is currently constructing a new urea fertilizer factory, named the Ghorashal Polash Urea Fertiliser Factory, with a designed capacity of 1 million metric tons per annum (some data suggest a capacity of 925,000 metric tons per annum). The factory is expected to be completed by December 2023. The new urea facility aims to ensure that farmers have access to urea at a lower cost, thereby meeting the growing domestic demand and contributing to the nation's food security. Upon completion, the domestic urea production capacity will reach 2.05 million metric tons, reducing the import gap to only 550,000 metric tons. This will lead to a decrease in urea import dependency from 59% to 24%, resulting in significant foreign exchange savings.

（8）Europe: Total Production Capacity of 11 million tons, with Higher Import Demand

According to Bloomberg data, the total urea production capacity in Europe is 11 million tons, primarily concentrated in Germany, the Netherlands, and Romania. Some countries, due to limited or absent urea production capacity, rely on importing urea from other countries to supplement their needs.

Data Source: Bloomberg

（9）Pakistan: Net Exporter of Urea in Exchange for Foreign Exchange

Pakistan, as one of the major net exporters of urea in Asia, earned up to 250 million US dollars through exports in 2019. The projected urea production capacity of Pakistan in recent years is 6.5 million tons, with actual production reaching around 7 million tons and domestic demand at 6 million tons, leaving an export potential of about 900,000 tons. However, in 2022, escalating disputes between domestic and foreign natural gas suppliers exacerbated a severe shortage of natural gas, leading to a significant decline in domestic urea production. This resulted in a supply-demand imbalance domestically. Yet, with the assistance of China, Pakistan managed to receive an export of 300,000 tons of urea from China. As of July 2023 reports, due to ongoing natural gas shortages, domestic production facilities have not fully resumed, resulting in a urea shortfall of 500,000 tons.

03 Global Crop Demand Calendar.

According to the global crop calendar provided by Bloomberg, the period from January to June each year is typically the peak planting season for regions in the northern hemisphere, including China, the United States, and Europe. Currently, the peak planting season in the northern hemisphere has mostly concluded, with only minor demands remaining for activities such as autumn fertilization. In the southern hemisphere, notable crops like soybeans in Brazil and Argentina, as well as the significant planting season in India (Indian tenders), have a larger influence.