World nitrogen supplies will “remain tight into 2025”, CF Industries said, citing the prospect of continued high energy prices in Europe, where soaring gas bills prompted the closure of 60% of capacity.
The US-based group, which also owns the UK’s Billingham plant, said that the conditions which have buoyed nitrogen prices for the past year “show no signs of abating”, notably thanks to expectations of continued high prices in Europe for natural gas, a key raw material for nitrogen output.
“Forward energy curves… point to persistently high energy prices” in Europe, where soaring gas costs left an estimated 60% of ammonia capacity lay mothballed in the July-to-September quarter, CF Industries said.
Indeed, forward energy prices “suggest that production economics in Europe and Asia are likely to remain challenged for at least the next two years”, maintaining a squeeze on global supplies.
‘Will take at least two more seasons’
This as demand for the fertilizer remains strong from farmers seeking to exploit high crop prices, which remain supported from the dent to yields in many countries, including the US, from weather setbacks.
“Below-trend yields are expected in key growing regions… preventing any meaningful increase to global grains stocks this year,” CF Industries said.
The group forecast that “it will take at least two more seasons at trend yield to fully replenish global grains stocks”, a factor which would maintain support for “strong” grain plantings and nitrogen applications.
The combination of high European energy costs and resilient demand mean that “the global nitrogen supply-demand balance will remain tight into 2025”.
China export slump
The group noted that Western nitrogen supplies were being squeezed too by a slump in China’s urea exports, in the face of export restrictions reportedly imposed to protect domestic supplies.
CF Industries forecast Chinese urea exports tumbling to 1.5m-2.0m tonnes this year, from nearly 6m tonnes in 2021, and the lowest total since at least 2016.
However, some other commentators are more upbeat on nitrogen supply prospects, noting a slump of more than 60% in European gas prices from August’s record highs.
Yara, the Norwegian nitrogen giant, said last week that it was producing ammonia output at about 65% of capacity, having mothballed nearly two-thirds of its capacity during the gas price spike.
The gas price futures curve, as measured by Europe’s benchmark Dutch TTF contract, suggests gas prices remaining stable through 2023, with the December 2023 lot trading on Friday at E131.494 per megawatt hour, in line with the December 2022 contract price of 129.825.
Earnings fall short
CF Industries – able itself to rely on lower-cost US gas supplies – reported earnings of $438m for the July-to-September quarter, compared with a loss of $185m a year before, on sales up 70% at $2.32bn.
Earnings per share, at $2.18, came in well below the $3.33-per-share number investors had expected.
CF Industries gained 0.3% to $104.14 in early deals in New York.