Market Update: Nitrogen and the Ukraine
The Ukraine is a key Nitrogen producing country, and is an important exporter in the global markets. We estimate current Ukrainian capacity is ~4.1 mln mt of Urea and ~5.5 mln mt of Ammonia. While this represents only ~2.5% of global capacity, the country is a key exporter, and availability from these markets can influence global pricing.
The Ukraine accounts for ~8.5% of globally exported Urea and ~6.5% of globally traded Ammonia. With the new gas contacts of ~$265/Mcm, we estimate that the country now sits in the middle of the global cost curve, with Ammonia costs of ~$300 mln mt and Urea costs of ~$235 mln mt.
Late last year, Ukrainian plants saw shutdowns when the price of Urea fell below their cash costs of production, which were ~$300 at the time based off gas costing $395/Mcm. Production curtailments in the Ukraine, along with the closing the Chinese tariff window, helped to send prices into the beginning of this calendar year.
There are multiple Nitrogen producing assets in the region. Ostchem (Group DF) is the largest company, owning multiple production facilities. Privat Group (Dniproazot) also has nitrogen assets, as well as the state-owned Odessa Port Plant.
Current reports from Green Markets show that Nitrogen capacity is still online but running at minimal levels. The political violence in Kiev and other major cities has not reached the plants. Even if the turmoil were to reach the production and export facilities, at present the impact on the S&D structure and global prices would be marginal because of excess supplies from other Urea and Ammonia producing regions. This situation could change once major buying countries such as India return to the market in the spring.