Young Research & Publishing Inc.

Investment Research Since 1978

Disclosure

In the World of Fertilizer, America is Surging

By

One relatively less obvious benefit of America’s shale-gas revolution is the more competitive production of urea based fertilizers. China leads the world in production of this value-added commodity, but the U.S. is surging to overtake the Middle Kingdom thanks to plentiful, low cost natural gas production.

In 2016, U.S. production increased by 24% while Chinese production fell 7%. This is one area where America can beat China on cost. U.S. fertilizer companies can produce a metric ton of urea using natgas for $130. Meanwhile Chinese producers, typically using anthracite coal as a feedstock, have average costs between $180 and $210 per ton. Lucy Craymer and Rhiannon Hoyle write for The Wall Street Journal that the surge in U.S. production is likely to continue:

The surge in U.S. fertilizer production will likely continue this year, as a number of long-planned new plants—which typically take around four years to build—come online. U.S. ammonia production capacity could jump by 2 million metric tons this year to around 11.4 million metric tons, Rajesh Singla, head of agriculture research at Société Générale, estimates.

Urea production capacity could also rise by 4.1 million metric tons this year, with at least five massive new plants or expansions due to start operating, according to ICIS, a market-information provider, put-ting the U.S. on track to have 50% more capacity by 2020 from 2015.

Illinois-based fertilizer manufacturer CF Industries has just finished one of these projects, an expansion of its Port Neal nitrogen plant in Sioux City, Iowa, the heart of the U.S. cornbelt.

“Given where we viewed the long-term cost of gas in the U.S., we thought this is the right place to invest,” said Chief Executive Tony Will. The plant is expected to produce 816,466 metric tons of ammonia and 1.27 million metric tons of urea annually, employing around 100 people.

As more fertilizer output moved to the U.S., urea imports in 2016 slumped, dropping by 34% last year. Although China remains the largest exporter, its share of global urea production fell to 39% in 2016 from 43% a year earlier, according to CRU Group, a commodities consultancy.

Read more here.

The following two tabs change content below.

Dick Young

Richard C. Young is the editor of Young's World Money Forecast, and a contributing editor to both Richardcyoung.com and Youngresearch.com.