Global Nitrogen Supply & Demand TFI Outlook, Jacksonville … Nitrogen Supply... · 2018-11-27 · Q3 2017. TFI Outlook Conference. SE ASIA & OCEANIA: Capacity growth has slowed and

Alistair WallaceInteger Research, LondonE: [email protected]

LondonInteger Research LtdInvicta House , 108-114 Golden LaneLondon, EC1Y 0TL, United KingdomTel: +44 20 7503 1265Fax: +44 20 7503 1266

BeijingInteger Research LtdRoom 1913, Henderson Center Tower 1No.18 Jianguomennei Str.Beijing, 100005, ChinaTel: +86 135 2021 7871

TokyoInteger Research Ltd7F Toranomon 40MT Bldg.5-13-1, Toranomon, Minato-KuTokyo, 105-0001, JapanTel: +81 80 4118 5774

Global Nitrogen Supply & DemandTFI Outlook, Jacksonville

November 2018

BACK

UpdatedQ3 2017

TFI Outlook Conference

OUTLINE OF TODAY’S PRESENTATION

Source: Integer

1. OUTLOOK FOR DEMAND

2. OUTLOOK FOR CAPACITY

3. S/D FORECAST

4. CHINESE SUPPLY CRUNCH

5. WILDCARDS

6. CONCLUSIONS

BACK

UpdatedQ3 2017


GLOBAL UREA DEMAND HAS HALVED: Trend growth is averaging 1.5% p.a. and unless we see significant growth from Africa it’s unlikely to change

Source: GTIS, COMTRADE, Integer

0

50

100

150

200

2018

2006

2012

2007

2003

2010

2009

2023

2008

2004

2005

2011

2014

2013

2015

2016

2017

2019

2020

2021

2022

Million tonnes

3.7%

1.5% Africa

South America

FSU

Middle EastEurope

North AmericaSE AsiaSouth AsiaEast Asia

BACK

UpdatedQ3 2017


SOUTH ASIA REMAINS THE BASELINE FOR GROWTH: We are expecting India to continue recovering lost cosuption growth for the next 18 months

Source: Integer

-20

-15

-10

-5

0

5

10

15

20

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

2021

Million tonnesY AxisMillion tonnes

20202018 20232019 2022

World CumulativeFSUAfrica

South America

Middle EastEurope

North AmericaSE AsiaSouth AsiaEast Asia

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UpdatedQ3 2017


ADBLUE/DEF DEMAND IS A MAJOR DRIVER: We are forecasting AdBlue demandto drive around 20% of future urea demand growth

Source: Integer

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

20202018 20222016 2017 20232019 2021

Million tonnes+3.4

ROW

Other AsiaBrazilOther LATAM

JapanIndiaChinaCanadaUSEU

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UpdatedQ3 2017


EM CURRENCY CRISES: Policy response to weakening currencies in emerging makets will prove critical to demand over the next 12 months

Source: Integer

Jan

0.20

0.18

0.17

MarFeb Apr May Jun Jul Aug

0.26

Oct

0.25

0.24

0.23

0.22

0.27

0.19

0.16

0.21

0.00Sep

USD/TRY

-40%USD/TRY

0

2

4

6

8

10

12

14

16

18

20

22

24

Feb-

15

Per cent

Sep-

18

1-Ju

n-18

Nov

-16

7-Ju

n-18

BACK

UpdatedQ3 2017



Source: Integer



3. S/D FORECAST


5. WILDCARDS

6. CONCLUSIONS

BACK

UpdatedQ3 2017


CENTRAL ASIA & THE CAUCUSES: Integer is forecasting three projects to be operational in Central Asia by the close of 2019

Source: Integer

Garabogaz, TurkmenistanCapacity: 1.2 million t/yCAPEX: $1.6 billion

Yangiyer, UzbekistanCapacity: 0.4 million t/yCAPEX: $0.6 billion

Navoiyazot, UzbekistanCapacity: 1.2 million t/yCAPEX: $1.6 billion

SOCAR, AzerbaijanCapacity: 0.7 million t/yCAPEX: $0.9 billion

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UpdatedQ3 2017


RUSSIA & EAST EUROPE: We currently only have two significant new urea plants in our forecast for Russia, but there is potential for more building

Source: Integer

GrodnoAzot, BelarusCapacity: 1.2 million t/yCAPEX: $1.6 billion

Metafrax, AzerbaijanCapacity: 0.5 million t/yCAPEX: $0.7 billion

Kubiyshev, RussiaCapacity: 0.5 million t/yCAPEX: $0.2 billion

Nakhodka, RussiaCapacity: 2.0 million t/yCAPEX: $3.0-3.5 billion

ToAz, RussiaCapacity: 0.7 million t/yCAPEX: $0.4 billion

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UpdatedQ3 2017


AFRICA: Nigeria is one of the last places gas is available for under $2.00/MMBtu, but investment opportunities look more limited now

Source: Integer

Kima, EgyptCapacity: 0.5 million t/yCAPEX: $0.5 billion

Dangote, NigeriaCapacity: 2.5 million t/yCAPEX: $2.4 billion

Brass Fertilizer, NigeriaCapacity: 1.3 million t/yCAPEX: $1.2 billion

Notore, RussiaCapacity: 0.2 million t/yCAPEX: $0.1 billion

Eleme II, NigeriaCapacity: 1.4 million t/yCAPEX: $1.1 billion

BACK

UpdatedQ3 2017


MIDDLE EAST: US sanctions on Iran have limited building activity in Iran, there are two potential plants, but only one is close enough to include

Source: Integer

GorakhpurMatix

RamaTalcher

Lordegan, IranCapacity: 1.1 million t/yCAPEX: $0.7 billion

MIS Petrochem, IranCapacity: 1.2 million t/yCAPEX: $0.8 billion

BACK

UpdatedQ3 2017


INDIA: India could replace almost all of its import requirement by 2023 if the HURL projects move ahead, but access to gas remains a challenge

Source: Integer

Gorakphur, IndiaCapacity: 1.3 million t/yCAPEX: $1.0 billion

Sindri, InidaCapacity: 1.3 million t/yCAPEX: $1.0 billion

Matix, IndiaCapacity: 1.3 million t/yCAPEX: $1.1 billion

Barauni, IndiaCapacity: 1.3 million t/yCAPEX: $1.0 billion

Gadepan III, IndiaCapacity: 1.3 million t/yCAPEX: $0.9 billion

Ramagundam, IndiaCapacity: 1.3 million t/yCAPEX: $1.0 billion

Talcher, IndiaCapacity: 1.3 million t/yCAPEX: $1.8 billion

BACK

UpdatedQ3 2017


SOUTH AMERICA: There is only one project we are seriously tracking in LATAM and gas supply remains challenging in Brazil

Source: Integer

UFN III, Brazil (Acron)Capacity: 1.2 million t/yCAPEX: $1.3 billion

BACK

UpdatedQ3 2017


NORTH AMERICA: We are not forecasting any additional US capacity investments at present; greenfields look to costly

Source: Integer

Midwest Ferts, USACapacity: 0.8 million t/yCAPEX: $2.4 billion

BACK

UpdatedQ3 2017


SE ASIA & OCEANIA: Capacity growth has slowed and BFI Brunei is now the only project in the region we are forecasting

Source: Integer

BFC, BruneiCapacity: 1.3 million t/yCAPEX: $1.8 billion

BACK

UpdatedQ3 2017


CAPACITY FORECAST: At first glance, the market looks well supplied over the next five year, averaging >3.5 million t/y of additions

Source: Integer

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

2017 20202018 2019 20232021 2022

2.5

LATAM

CISN. AmericaN. Africa

SE AsiaMiddle EastW. AfricaSouth Asia

BACK

UpdatedQ3 2017

TFI Outlook ConferenceSource: Integer

FULL ECONOMIC COSTS ARE AN ESSENTIAL MEASURE OF SUCCESS: Governments are lowering the cost of capital to the nitrogen industry

122

242

20

131

39

020406080

100120140160180200220240260

280

SOCAR, Economic costs$/tonne

TaxOPEX Capital ServicingVIU

8

Risk Economic cost

258

BACK

UpdatedQ3 2017


THE NATURE OF CAPACITY INVESTENT HAS SHIFTED: Governments are driving a wave of counter-cyclical investment…

18 20 21 22 23 25

150

6 13 240

50

100

200

250

350

400

450

100

300

1 2 3 4 5 7 8 199 11 12 14 15 16 17

300

Economic cost of supply,$/tonne

258

BACK

UpdatedQ3 2017



Source: Integer



3. S/D FORECAST


5. WILDCARDS

6. CONCLUSIONS

BACK

UpdatedQ3 2017


S/D BALANCE: Based on pure capacity and demand forecasts the nitrogen market looks like it will be very oversupplied …

Source: Integer

-7-6-5-4-3-2-1012345678

20182016 2017 2019 2021

Million tonnes

2020 2022 2023

Net ChangeDemandCapacity expansion

BACK

UpdatedQ3 2017


S/D BALANCE: But once we adjust for closures, Chinese policy changes and US sanctions on Iran, the market looks much, much tighter

Source: Integer

-7-6-5-4-3-2-1012345678

2021202020182016 20232017 2019 2022

Million tonnes

Chinese export deltaIran export delta

Net ChangeDemand

ClosuresCapacity expansion

BACK

UpdatedQ3 2017


S/D BALANCE: If we add the more speculative projects, expect a significant oversupply even in the early-2020s

Source: Integer

-8

-6

-4

-2

0

2

4

6

8

10

20192016 2017 2018 2020 20232021 2022

Million tonnes Net ChangeDemandChinese export deltaIran export deltaClosuresCapacity expansion

BACK

UpdatedQ3 2017



Source: Integer



3. S/D FORECAST


5. WILDCARDS

6. CONCLUSIONS

BACK

UpdatedQ3 2017


65

350

150

250

45 6015 80500

100

5

50

40 753010 35 5525 700

300

200

20

335

285

$/tonne

Bituminous LigniteCoke Gas Lump anthracite

Natural GasPowder anthracite

CHINESE COST CURVE: China’s cost curve has lowered across the year as coal prices eased and the renminbi depreciated

BACK

UpdatedQ3 2017


65

100

040 7535 60

300

55155 8010 70300 502520 45

200

400

Idle: Gas Rationing December

OperationalIdle: Environment & EconomicIdle: Gas Rationing October

252010 75

200

0 5 15

300

0806560 70504540 553530

100

400

CHINA’S IDLE PLANTS: China’s effective capacity is currently estimated at 62.5 million t/y, and will fall towards 40.0 million

BACK

UpdatedQ3 2017


78

63

46

14

13

4

0

50

100

Nameplate

2

Idle: E&E

Million t/y

Idle: Gas (f)Idle: Gas Effective Oct Idle: Coal (f) Effective Dec (f)

CHINESE OPERATING RATES: China’s operating rate is often understated, if we reappraise it for idled plants we can see why prices are so high

BACK

UpdatedQ3 2017


CHINESE OPERATING RATES: If capacity is adjusted down for idle plants, China has been operating at around 85-90% for much of the year

Source: Integer

5.2

4.5

3.1

5.55.2

3.8

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

Dec-18

Million t/m

Aug-18May-18

CapacityProduction

BACK

UpdatedQ3 2017



Source: Integer



3. S/D FORECAST


5. WILDCARDS

6. CONCLUSIONS

BACK

UpdatedQ3 2017


0

1

2

3

4

5Ja

n-11

Jan-

09

Jan-

10

Jan-

12

Jan-

13

Jan-

14

Jan-

15

Jan-

16

Jan-

17

Jan-

18

Million tonnes

Other

Iraq

China

SE Asia

AfricaLATAM

TurkeyOther S AsiaIndia

IRANIAN SANCTIONS: India notionally no longer buying Iranian urea following MMTC tender addendum, but…

BACK

UpdatedQ3 2017


0

1

2

3

4

2019 - Base case2018 2019 - Downside scenario

Million tonnes-1.4 -3.0

IRANIAN SANCTIONS: Despite its pronouncements otherwise, expect India to blur the source of origin via China and the UAE

BACK

UpdatedQ3 2017


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

110%

120%

Bela

rus

Spai

n

Mex

ico

85%

Operating rate, 2018U

krai

ne

New

Zea

land

Trin

idadIra

q

Afgh

anist

an

Kuw

ait

Serb

ia

Qat

ar

Uzb

ekist

an

Vene

zuel

a

Pola

nd

Net

herla

nds

Fran

ce

Liby

a

Braz

il

Rom

ania

Paki

stan

Bang

lade

shHu

ngar

yCh

ina

Turk

men

istan

Boliv

iaLi

thua

nia

Bahr

ain

Japa

n

Om

an

Indo

nesia

Azer

baija

n

Arge

ntin

aIta

lyVi

etna

mTu

rkey

Iran

USA

Alge

ria

Croa

tia

Russ

iaSl

ovak

ia

Saud

i Ara

bia

Mal

aysia UA

E

Cana

da

Nig

eria

Aust

ria

Indi

aG

erm

any

95%

Aust

ralia

Egyp

t

Stable opera

Structural isSpare capac

IRANIAN EMBARGO: If our downside scenario plays out the market needs to replace 3 mn t of urea. Spare capacity is limited.

BACK

UpdatedQ3 2017


278

342

230

29438

26

38

26

0

50

100

150

200

250

300

350

400

Fixed costs

$/tonne

Energy costEnergy cost Other cash variable

costs

Fixed costs Other cash variable

costs

FOB export cost

FOB export cost

315

Ukrainian export cost at $12.50/MMBtu Ukrainian export cost at $10.00/MMBtu

UKRAINIAN RESTART: It will be difficult to restart Ukrainian exports with $8.00/MMBtu European gas. Even with $300/t FOB urea.

BACK

UpdatedQ3 2017

TFI Outlook ConferenceSource: Integer, Reuters

NBP$9.62

MIB$9.45

TTF$9.51

ZEE$9.51

PEG$9.53 VTP

$9.71

PSV$10.15

NGC$9.51

RUS$2.20

UKR$12.00

UKR$11.50

LNG$9.90

LNG$9.50

TRS$9.60

POL$9.94

EUROPEAN GAS: European hubs are proliferating across Europe, and are pricing to their marginal supply; seaborne LNG

BACK

UpdatedQ3 2017



Source: Integer



3. S/D FORECAST


5. WILDCARDS

6. CONCLUSIONS

BACK

UpdatedQ3 2017CONCLUSIONS

INTEGER | UREA WEBINAR | 10th OCTOBER 2018

The urea market looks to be tipping towards deficit for the next two or three years. At least until India and Nigeria complete their capacity build-outs

China will remain supportive of higher urea prices in the near-term as it continues to withdraw liquidity

The S/D balance should tighten market until 2021/22, although we are assuming Iran has a much reduced role. Should they find work-arounds to avoid sanctions, expect price sentiment to soften.

Governments are directly and indirectly subsidizing the urea market and could tip market back to significant surplus

LondonInteger Research LtdInvicta House , 108-114 Golden LaneLondon, EC1Y 0TL, United KingdomTel: +44 20 7503 1265Fax: +44 20 7503 1266

BeijingInteger Research LtdRoom 1913, Henderson Center Tower 1No.18 Jianguomennei Str.Beijing, 100005, ChinaTel: +86 135 2021 7871

TokyoInteger Research Ltd7F Toranomon 40MT Bldg.5-13-1, Toranomon, Minato-KuTokyo, 105-0001, JapanTel: +81 80 4118 5774

Thank you!

Documents

Global Nitrogen Supply & Demand TFI Outlook, Jacksonville … Nitrogen Supply... · 2018-11-27 · Q3 2017. TFI Outlook Conference. SE ASIA & OCEANIA: Capacity growth has slowed and