The ammonia market so far in 2024

The ammonia market faced further downward correction in January, starting 2024 in a similar vein to how 2023 ended. The market in Western Europe came under pressure as production costs dropped. It was similar in the Baltic, where liftings from the Ust-Luga terminal were similar to previous months.

This continued into February as the market continued to suffer from subdued demand. Falling natural gas prices in Europe meant cheaper production costs, which could result in a drop in European imports in the coming months if conditions remain the same. However, during February at least, Europe remained reliant on imports as many producers decided to hold-off on ramping up their European production for the time being.

Overall, the market in Europe is expected to remain under pressure, but it may be buoyed by the approaching spring application season, which usually results in an uptick in demand.

The key trends observed in the ammonia shipping trade are that today 80% of ammonia demand is for the fertilizer industry, and the remaining 20% is used for chemical processes. China is the largest producers of ammonia, accounting for 30% of global production. The US has positioned itself to become a major ammonia exporting country with imports gradually falling year-on-year.

The main point of discussion in the ammonia market so far in 2024, like many others, has been with regards to the geopolitical situation in the Red Sea. The Middle Eastern market has come under widespread pressure because of the current tensions. Around a quarter of the approximate 4mn tonnes of ammonia exported from the Middle East in 2023 went to destinations West of Suez. This number grew significantly following the start of the conflict in Ukraine 2 years ago which took the considerable Black Sea export programme off the market.

The supply loss from the Black Sea opened new markets for Middle Eastern ammonia producers to ship to Europe and North Africa, which was not commonly done prior.

However, with the current situation in the Red Sea, some of the Middle Eastern producers that were benefitting from the higher netbacks on offer with these voyages to West of Suez destinations now face severe logistical issues of their own. Ma’aden for example diverted one of their vessels around the Cape of Good Hope, which then performed an STS operation in Morocco, to ultimately deliver a cargo into Bulgaria. In addition, Moroccan importer OCP have also been forced to re-route their vessels around the Cape of Good Hope.

As a result of these lengthier voyages, buyers have stepped into the spot market to fulfill their needs, and they may look to alternative sources if the situation continues, particularly when demand increases as spring application season draws closer.

One of the main market changes in the months immediately following the Russian invasion of Ukraine was the increase in tonne-miles observed in the seaborne ammonia market. The increase in tonne-miles led to more vessels being absorbed into this trade. If re-routing around the Cape of Good Hope continues to be done by a significant portion of the fleet, then we may see another spike in vessels moving from the LPG trade into the ammonia trade.