The 76th Conference of the International Fertilizer Association has recently been concluded in Vienna, Austria, with the participation of more than 1600 delegates from various parts of the world. Taking part in this event was a large number of prominent figures, specialists, decision makers and experts concerned with this vital industry.
Gulf Petrochemical Industries Company effectively participated in this important gathering and on this occasion Mr. Abdul Rahman Jawahery, GPIC General manager made a statement in which he said that the fertilizer industry has attracted the attention of the whole world due to the major role played by this industry in providing food security for all nations of the world. The changing patterns of this strategic industry in terms of production, consumption, prices and world trade are worthy of study and analysis as this sector has witnessed stable levels of supply and demand for fertilizers and their raw materials since the end of 2007 until today. This pattern is expected to continue for some time to come. He indicated that the reasons that contributed to this situation were the continuous demand for fertilizers and their raw materials to provide food security for all peoples of the world, the economic growth witnessed by most countries of the world, improvement in concern with public health and development of fertilizing methods to achieve the optimum benefits of fertilizers and conservation of the environment.
Jawahery added anyone who observes the growth of the fertilizer industry and the price curve will indeed be puzzled. The most optimistic observers could not forecast that this industry would witness such rapid changes within a very short period of time that would enhance and increase the world's food stocks. The world consumption of fertilizers witnessed a major growth amounting to 8% during the period from 2005 to 2007 which equals 7 million tons of fertilizers annually. Forecasts indicate that demand for fertilizers will increase at an annual rate of around 2.9% during the period from 2007 to 2012 which means doubling the annual rate witnessed in the last five years of the previous decade. The world fertilizer consumption will reach around 173 million tons in 2008 and this rate will increase to reach 193 million tons in 2012.
Jawahery added if we want to talk more specifically about the current and future situation of ammonia and urea since GPIC is a major producer of these products we have to make it clear that the manufacture of fertilizers and their byproducts especially urea and ammonia are closely linked to energy prices such as natural gas, coal and naphta and about two thirds of the existing capacity depend upon natural gas as a feedstock. We notice that most of the expansion and increase in production capacity is focused in the areas where the cost of natural gas is low such as the Arabian Gulf region, where ammonia production capacity is expected to rise from around 11 million tons in 2007 to around 17 million tons in 2012, an increase of 55% of the 2007 production level. As for urea, it is expected that the production capacity in the Arabian Gulf region is expected to rise from 14 million tons to around 20 million tons in 2012, an increase of 43% for the same period.
During the last 13 years, Jawahery explained that the urea markets witnessed a moderate growth in the demand level compared with a rapid growth in production capacity making many new investors reluctant to invest in the fertilizer industry. However, with the rapid change witnessed in 2006 in the demand level the opportunity was not given to producers to meet demand for urea which contributed to the increase in prices to exceed US$700per ton during the second quarter of 2008. Reports indicate that urea will maintain its good levels in spite of the new capacity expected for a period of at least 5 years which prompted many investors to invest in the fertilizer industry. Meanwhile, ammonia prices witnessed an increase bring them to levels of more than US$500. However, because India stopped buying price levels could not be maintained and started a steep decline to reach US$400 per ton.
The ammonia and urea supply and demand situation experienced a significant deficit in the availability of quantities available for export by most producers and this is due to the high increase in consumption levels worldwide. Also the suspension of operations in some plants for technical reasons or for planned regular maintenance in addition to delays in the operation of some new plants have played a role in this situation. According to the specialized reports published by IFA, the world production of ammonia, which represents the main resource for the fertilizer manufacture in 2007, about 153 million tons which represents 4.5% increase over the output in 2006. Most of these increases were witnessed in the People's Republic of China, which used to rely upon coal as a basic raw material for manufacture of ammonia, Arab Republic of Egypt and Saudi Arabia while production declined in India, Canada, Vietnam and Poland. As a result, the rate of production operations in 2007 amounted to around 88% of the available world capacity compared with 86% in 2006. It is expected that the ammonia production capacity will increase following the coming on stream of new factories during the period from 2008 to 2012 to reach a total of around 214 million tons. When we talk about the new production capacity in 2008 that amounts to 6.6 million tons the surplus will be around 1.8 million tons which will be available for export and the balance will be used for the manufacture of nitrogenous fertilizers of various kinds while there will be no major surplus for export from the expected new capacity in the years 2009 and 2010, as most of them will be used in the manufacture of fertilizers, especially urea. However, it is expected that there will be a surplus of ammonia from the capacity due to come on stream in 2011 by around 3 millions tons available for export.
The world trade of ammonia amounted to around 16.6 million tons in 2007 and it is expected to rise during the next 4 years to around 20 million tons by the year 2012 when the new capacity becomes operational. It should be noted that most of these quantities would be exported to the Arab Republic of Egypt, Iran and Qatar.
Meanwhile, Mr. Jawahery said farmers usually prefer fertilizers that comprise a high percentage of fertilizing elements and nutrients for plants and urea comes as the fertilizer most preferred by farmers from all the nitrogenous fertilizers since it contains as much as 46% of nitrogen. Urea consumption levels increased compared to other nitrogenous fertilizers from 36% to 59% at the end of 2007. According to the available reports, the world urea production rose by 6.6% to reach 144 million tons in 2007 with an operation level of 91% of the available capacity worldwide. The biggest urea capacity expansion was witnessed in the People's Republic of China, Arab Republic of Egypt and Saudi Arabia whose combined share of the new capacity represents around 80% before the suspension of certain plants in Argentina, Brazil and Venezuela owing to natural gas supply shortages in 2007.
The world's urea exports in 2007 were estimated at about 36.4 million tons with an increase of 15% compared with 2006 figures and the markets of India, US, Brazil and Western Europe were the biggest markets for urea imports. It should be noted that the most significant events witnessed by urea markets was the large increase in China's exports to reach around 16% or more than 6 million tons. In addition, Egypt and Saudi Arabia enjoyed a big share as they were able to operate the new plants at full capacity. However, owing to its domestic requirements the Chinese government imposed a 30% export tax which was later raised to 130% in early 2008 for providing urea for the agricultural sector.
As for the urea production capacity, Jawahery said it witnessed an expansion during 2007 to reach around 5 million tons bringing the total production capacity to around 157.7 million tons, which represented 3% increase over the production level in 2006. If we look at the international expansion of urea production capacity, we will note that there is an increase of around 20 urea plants during the period from 2004 to 2007 most of which were built in Asia and North Africa. According to estimates, it is expected that 50 new plants will be added during the period from 2008 to 2012. According to the most recent survey conducted by IFA, the new plants are forecast to add a production capacity estimated at around 46 million metric tons during the period from 2007 to 2012 an increase of 30% bringing the total production capacity in the world to around 204 million metric tons by the year 2012. This means that there will be an annual growth rate estimated at 9% and if we look at the new plants whose output will be for export the planned capacity amounts to around 14 million tons to be set up in West Asia and North Africa. Reports indicate that the production capacity in China will be around 20 million tons during the period from 2007 to 2012 to reach 76 million tons which represents an annual growth rate of 5%.
In view of the above and if we take into account that the maximum operational level amounts to 92%, the urea supply is estimated at around 145 million tons in 2007 to reach 187 million tons by the year 2012 i.e. a growth rate of around 5.5% above the 2007 figure which is met by growth in the level of demand from the agricultural and industrial sectors from 142 million tons in 2007 to 180 million tons by the year 2012, which represents an increase of 38 million tons or 5% as an annual growth rate. It is expected that demand for urea for industrial purposes will increase by an annual rate of some 6% to bring the total urea demand for industrial purposes to 20.2 million tons for the same period.
Concluding his statements, Jawahery said the factors that influence fertilizer consumption levels can include economic factors relating to per capital income levels so that whenever the income level rises the purchasing power is increased. Also the prevailing weather conditions play their part in fertilizer consumption increase which results in increasing the agricultural land area, hence production of more crops. It was noticed in previous period that many countries were hit badly because of the drought and lack of rainfall resulting in shrinking demand for fertilizers in these countries which cast their shadows on the price levels, making them fluctuate upwards and downwards in different periods.
He said we should not overlook the policies and legislation introduced by certain countries especially for protection of the environment through the optimum use of fertilizers in the soil. There are some countries such as the US and Brazil that attempt to use clean fuel that is based upon ethanol which is derived from grains. This has resulted in further demand for fertilizers to increase crop production.
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© Press Release 2008
