The nitrogen fertilizer sector is "optimistic" about 2017, helped by a slowdown in capacity growth, Russian manufacturer Acron Group said, amid a revival in prices, which are already up 12% this year.
While acknowledging that 2016 had been "the most difficult year for the fertilizer market" in a decade, with prices of some nitrogen products such as ammonia hitting their lowest since 2005, the sector had now turned a corner, Acron said.
Prices had, after hitting a "price floor" in the July-to-September quarter, recovered sharply, alongside a jump in costs of coal for Chinese plants, leading exporters of urea, and many of which utilise anthracite coal as a key raw material.
In the second half of last year, "coal prices rose sharply, resulting in dramatic change in fertiliser prices.
"Urea prices started growing and gave a pull to related products."
Indeed, urea prices, as measured in the key Baltic export market, are up 12% so far in 2017 to $247 a tonne, with ammonia up 9% at $295 a tonne, according to Credit Suisse,
This continues a dramatic recovery which, according to VTB Capital, has seen Baltic urea values soar 28% over the past three months, with Chinese values up 24%.
And in the US too urea price are rising, gaining 2.9% over the past week, to take gains since Christmas to 10.0%, as measured in the New Orleans export market, Raymond James said on Tuesday.
"Prices rose again last week due to additional Chinese supply cuts," said the Canadian-based broker, which has also highlighted the role of anti-pollution moves in curbing China's output.
Raymond James added that the latest US price gains had defied expectations of additions to North American production capacity, by manufacturers exploiting low prices of shale gas, which the region's own plants typically use as their energy source.
"Market sentiment appears to be declining in light of new capacity additions coming online like CF Industries' Port Neal and Agrium's Borger expansion," the broker said.
However, Acron said that globally, the industry does not this year "expect so much new nitrogen capacity to be put onstream", while and demand will "continue to grow".
"The fertiliser industry is optimistic about 2017," the group said.
The comments came as Acron revealed its own contribution to the growth in world capacity in 2016 which led to "oversupply, resulting in pressure on prices".
Acron's production of nitrogen fertilizers such as urea and ammonium nitrate soared 23% to 3.70m tonnes, with total nutrient output, including blended products such as NPK, up 19.8% at 5.28m tonnes.
"The group's output of key products hit a record high due to the commissioning of the new ammonia unit at Acron's site in Veliky Novgorod," said Alexander Popov, the group's chairman.
Acron shares closed down 1.2% at 3395 roubles in Moscow.
By Mike Verdin