Global Nitrogen Supply & Demand TFI Outlook, Jacksonville … Nitrogen Supply... · 2018-11-27 ·...
Transcript of Global Nitrogen Supply & Demand TFI Outlook, Jacksonville … Nitrogen Supply... · 2018-11-27 ·...
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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
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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
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TFI Outlook Conference
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
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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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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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TFI Outlook Conference
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
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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
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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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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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TFI Outlook Conference
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
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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
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TFI Outlook Conference
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
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TFI Outlook Conference
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
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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
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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: $1.8 billion
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CAPACITY FORECAST: At first glance, the market looks well supplied over the next five year, averaging >3.5 million t/y of additions
Source: Integer
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
6.0
2017 20202018 2019 20232021 2022
2.5
LATAM
CISN. AmericaN. Africa
SE AsiaMiddle EastW. AfricaSouth Asia
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UpdatedQ3 2017
TFI Outlook ConferenceSource: Integer
FULL ECONOMIC COSTS ARE AN ESSENTIAL MEASURE OF SUCCESS: Governments are lowering the cost of capital to the nitrogen industry
122
242
20
131
39
020406080
100120140160180200220240260
280
SOCAR, Economic costs$/tonne
TaxOPEX Capital ServicingVIU
8
Risk Economic cost
258
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UpdatedQ3 2017
TFI Outlook ConferenceSource: Integer
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
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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
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TFI Outlook Conference
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
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TFI Outlook Conference
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
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TFI Outlook Conference
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
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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
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UpdatedQ3 2017
TFI Outlook ConferenceSource: Integer
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
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TFI Outlook ConferenceSource: Integer
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
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TFI Outlook ConferenceSource: Integer
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
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TFI Outlook Conference
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
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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
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UpdatedQ3 2017
TFI Outlook ConferenceSource: Integer
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…
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TFI Outlook ConferenceSource: Integer
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
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UpdatedQ3 2017
TFI Outlook ConferenceSource: Integer
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.
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UpdatedQ3 2017
TFI Outlook ConferenceSource: Integer
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.
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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
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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
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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
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