The investment cycle has still steam in Fertilisers

The fall in gas price has add a strong effect on the fertilizer industry, as it has led to a drastic decrease in the prices of ammonia and urea (IFA data). This has left Chinese and Indian producers -which mostly rely on inputs that have not experienced such a fall in prices, like coal- with very poor profitability, according to CRU and Agrium data, thus leading to significant closures.

Despite these problems for the two largest nitrogen-based fertilizers producers, the investment cycle has still steam in this industry.

In effect, ammonia and urea production is correlated to GDP and, thus, continued sustained growth in China and India, together with the rapid development of growing regions like Africa, will continue to support investment. A number of investments are already in planning phase, the Ollam Fertilizer complex in Gabon ($13bn), should be completed by the end of the decade, and so should be a smaller plant in Tanzania ($1.5bn). In the Indian subcontinent, the Chambal Fertilizers plant has already been awarded to Toyo Engineering and should be completed by 2019, while a large coal-to-fertilizer plant in Odisha ($1.5) should be operational early in the next decade; the Chinese-built Gaddani plant in Pakistan is still under construction. Moreover, two plants to be developed by PetroKimia in Indonesia (totalling $520M investment) are currently in early stages of development.

Ammonia production capacity is expected to increase 2% CAGR up to 2020 driven by growth in Africa, North America and EECA (Eastern Europe and Central Asia) which will upset the effect of capacity reductions in China (IFA data). Moreover, at regional level, deficits are anticipated to increase in South Asia, Latina America and Oceania while surpluses will increase in Africa EECA and, to a lesser extent, West Asia.

Urea production will develop in more or less the same way, with 2% CAGR until 2020 thanks to developments in Africa, North America and EECA which are projected to account for around 70% of overall capacity growth (IFA data). Global demand is also expected to experience 2% p.a. growth driven mainly by Latin America and South Asia, which will contribute close to half the global incremental demand. Therefore, large potential surpluses are anticipated to persist in the next four years. Beyond 2020, new urea plants will mainly be developed where population and GDP will grow.

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