Massive Overproduction Brings Pressure upon Global Carbamide Pricing

Aug 14th, 2017

Yara International, a key global producer of nitrogenous fertilizers headquartered in Norway, warns about a sustained retreat in prices for carbamide caused by the sweeping overproduction. It will mean the reduction of margins and profits below the market expectations.

Despite China had reduced the exports by 32% (over 11 million tonnes), the restoration of profits was neutralized by increased carbamide production in other countries. The growth of carbamide capacity beyond Chinese borders puts pressure on global price quotations.

Yara experts recorded the weakest price for carbamide in the United States Gulf zone where the quotations declined below $200 per tonne having broken a ten-year minimum. Regardless the low demand, the region is oversupplied from the outside. In addition, the shale gas boom has intensified the domestic nitrogen production. Yara’s CEO Svein Tore Holsether says that the carbamide industry is facing a massive overproduction of nitrogenous fertilizers. He predicts that the pricing pressure will continue to increase in 2018 on account of the entry of many new fertilizer producers.

The production capacity outside China will grow by 8, 1 million tonnes thus outrunning the demand which will increase by 3 million tonnes. Same as last year, the U.S. will remain a leading carbamide producer with the capacity of 2, 4 million tonnes, followed by Iran that will increase the production by 1,4 million tonnes. As for Yara, it is increasing the capacity mainly in the segment of premium products the demand for which keeps on growing. The decision to invest in premium-quality fertilizers and supply them to the industrial sector is explained by the stable marginality of the latter.
Within Norway, the margin of non-specialised nitrogenous fertilizers will decrease. As a result, the profits will be reduced by 77% and the revenue will drop by 9,3% which is over NOK 23 bln.

Yara’s specialists note that that cost inflation was caused by the drop in carbamide production in China within July-May 2017 and the eleven months of the current marketing year. The production cut is estimated at 19% which is over 57 million tonnes.