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U.S. Nitrogen Fertilizer Market Soon to Reach Point of Saturation

U.S. Nitrogen Fertilizer Market Soon to Reach Point of Saturation

Rabobank says U.S. could become self-sufficient in urea as soon as 2017

The U.S. could become self-sufficient in urea supplies as soon as 2017, Rabobank analysts forecast in a new report released this week, bringing the U.S. nitrogen fertilizer market to a point of saturation as announced capacities are expected to come online in the next few years.

Market saturation, increasing fixed and variable costs for production, however, make further capacity additions in the short term unlikely.

Related: Weekly Fertilizer Review

Rabobank says U.S. could become self-sufficient in urea as soon as 2017

"Lower natural gas costs meant U.S. fertilizer producers were able to realize their dream of converting low cost inputs into higher priced outputs," Rabobank analyst Suzanne Pera explains. "As a result, the U.S. is set to move away from being a net importer of urea and is en route to self-sufficiency, which is set to have sizeable impact on global urea markets."

There are production cost challenges, however, as the recent abundance of cheap natural gas may be offset by LNG exports as the U.S. takes its first steps towards exporting part of its shale gas reserves to other regions, such as Europe.

Disappointing returns on investments in shale exploration could also led to a decrease in supply and put upward price pressure on natural gas prices in the short to medium term, Rabobank says. The same applies to domestic demand: the long, cold winter of 2013-2014 also caused natural gas prices to peak.

Increasing construction costs are another challenge, and are resultant of rising costs for engineering, procurement and construction contracts, the report finds. Similarly, attracting investment to secure plant financing is under pressure as a result of increased capacity supply outweighing demand globally, which is putting pressure on nitrogen fertilizer prices.

Related: Changes Ahead for Global Urea Market

Nitrogen fertilizer capacity that is due to come online will first feed into domestic demand. If U.S. demand for granular urea imports begins to fade, producers will be forced to look for other destination markets, like Europe.

Further capacity expansions in nitrogen fertilizers in the longer term in the U.S. cannot be ruled out; even when U.S. oversupply in the medium term continues to put pressure on nitrogen fertilizer prices, producers there can still incur lower fertilizer prices and make a return on invested capacities.

For the latest fertilizer news and fertilizer market updates, check out Farm Futures' Weekly Fertilizer Review.

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