LONDON, June 28, 2018 /PRNewswire/ -- Traders are already touting China as a possible solution to an industry facing oversupply and they increasingly look to the country to absorb surplus merchant ammonia. But, can the Chinese market absorb the surplus volume and what could be the impact on fertilizer markets if it does?
Surplus ammonia needs a market
Ammonia suppliers east and west of Suez are expected to benefit from sustained strong import demand from China in advance of significant capacity additions in Indonesia, the US and in the Baltic Sea.
Traders are already touting China as a possible solution to an industry facing oversupply and are increasingly looking to the country to absorb additional merchant ammonia, mostly to produce ammoniated phosphates, NPKs and for industrial use.
China broke into the world's top 10 importers of ammonia in 2017, IHS Markit data shows. The country will import as much as 1.0 million mt ammonia in 2018, up by close to 40% year on year, CRU forecasts suggest. China's January-March 2018 imports were 255,113 mt, up markedly on the 88,340 mt recorded in the same period in 2017.
The surge in import demand follows a widening price spread between Chinese domestic wholesale ammonia prices and the import cost based on CFR China since July 2017, driven by an increase in Chinese anthracite coal prices (a central feedstock for nitrogen production in China) as well as an acute shortage of natural gas during H1 2017.
Domestic Chinese ammonia prices remain at relatively-high levels in 2018 owing to a tight supply-demand balance following a raft of Chinese ammonia plant closures. This renders latest ammonia import prices in the $320-340/mt CFR range attractive to those companies based relatively close to Nanjing, Zhanjiang or Caojing ports.
Merchant ammonia imports would only be considered unattractive if prices firmed close to $350/mt CFR China when compared with current equivalent domestic ammonia prices of $468/mt FCA Hubei, CRU analysis suggests. This takes into account transport costs, such as barge, rail or truck depending on plant location, and 16% VAT applied on ammonia for both domestic sales and imports since May 1 2018, but is contingent on freight availability.
Diversifying import origins
Chinese ammonia importers appear open to sourcing from any major origin, as long as it is competitively priced. Last year saw Indonesia hold a 44% market share, with Saudi Arabia at 20% and Trinidad at 10%.
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