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The most significant aspect of the ammonia supply/demand balance is the change
in world capacity, both in the recent past and also in the near future. Increasing
demand and capacity reductions, coupled with rising natural gas prices in certain
geographical areas, have resulted in price increases for ammonia in recent
years. However, capacity is slated to increase in areas where the cost of natural
gas is relatively lower, such as in the Middle East, North Africa and the Caribbean
region. Production has increased significantly in China and the Middle East.
The average operating rate of the industry in 2006 is estimated to have been
close to 85%, after being as high as 90% in 2003, which is probably as high
as the industry can sustain. Assuming reasonable weather, and no additional
negative economic/political events, the market should move from tight situations
to a stable or slightly weaker situation as more new capacity comes on stream
and another downward cycle begins. In North America, the increase in natural
gas prices of nearly 50% between August and November 2005, due to the hurricanes
in the Gulf of Mexico, forced ammonia prices to record levels. Although prices
increased, profit margins have remained low for producers in countries hampered
by high natural gas prices. This prompted several producers to temporarily
shut down their plants. Ammonia exports have been increasing due to producers’ relocating
to regions where natural gas is available for relatively lower cost.
Ammonia is the basic building block of the world nitrogen industry and is
the intermediate product from which a wide variety of nitrogen fertilizer materials
and industrial products are produced. Fertilizer use accounts for about 85%
of the end-use market for ammonia. Although the direct application of ammonia
accounts for approximately 25% of the nitrogen fertilizer market in the United
States, on a worldwide basis ammonia is generally processed into a variety
of downstream products prior to being applied to the soil. The major downstream
fertilizer products include urea, ammonium nitrate, ammonium sulfate and ammonium
phosphates. A wide variety of industrial uses for ammonia and its derivative
products account for the remaining 10–15% of the world market. World
apparent consumption of ammonia increased by about 28% during 1990–2006,
a 1.6% average annual growth rate, and is forecast to increase at an average
annual rate of about 2% per year during the forecast period. World ammonia
production in 2006 was about 124 million metric tons of nitrogen (equivalent
to about 150 million metric tons of product).
The breakup of the former USSR and the severe economic problems associated
with a rapid conversion from centrally planned to market-driven economics in
the Eastern bloc countries severely depressed the world ammonia market in the
early 1990s. The market bottomed out in 1993 and recovered rapidly, with extremely
high prices occurring in the mid-1990s. However, a rapid buildup in new production
capacity then resulted in a severe cyclical decline and extremely low product
prices that bottomed out in early 1999. In 2000, the world ammonia market began
to tighten. High natural gas feedstock costs in some of the developed countries
have since resulted in significant plant closures leading to the recent very
high product prices. |
