Urea Sector - Lower urea price outlook in 2024, rebound in 2025

We lower our average Middle East urea price forecast for 2024F by ~8.6% from USD350/tonne to USD320/tonne (-10.5% vs 2023 and ~20% higher vs the pre-COVID level). Firstly, in its April report, the International Energy Agency (IEA) lowered its forecasts for the average global gas price by 19% to USD7.3/MMBTU in 2024, 28% lower vs 2023, which might support higher YoY urea supply from Europe. Secondly, in Q1 2024, the average Middle East urea price was USD339/tonne (-9% YoY, -12% QoQ) and in April, the average Middle East urea price further decreased to USD320/tonne (-3% MoM; 5.6% lower than the Q1 average). We forecast an average Middle East urea price of USD329/tonne in H1 2024 (-3.6% YoY) and USD311/tonne in H2 2024 (-17.1% YoY). From our understanding, the lower international urea prices for the most part of 2024 are due to 1) speculation for easing supply as China is expected to lift its export restrictions (after its domestic planting season), 2) a lower demand from key importing markets given the diminished planting activities due to the continued impact of El Niño and geopolitical tensions, and 3) lower urea production expenses as a result of diminished costs of essential raw materials.

We maintain our forecast for the average Middle East urea price in 2025F at USD350/tonne and USD330/tonne for 2026/27/28F. According to industry players, the urea price could rebound ~9% in 2025. According to Yara (one of the leading fertilizer companies in the world), global urea capacity expansion (excluding China) already peaked in 2022 at 6.2 million tons per annum (TPA). It is expected to reduce to 2.7 million TPA and 0.4 million TPA in 2024F and 2025F, respectively. Lower prices from 2026 onwards are due to our expectation for a further normalization after the disruptions caused by the start of the Russia-Ukraine conflict.

We increase urea average selling prices (ASP) assumptions for DPM by 2.7% while lowering that of DCM by 3.4% in 2024F following our 8.6% cut in the Middle East urea price forecast and changes in our premium assumptions (domestic price vs Middle East price). Specifically, for DPM, the 2.7% increase in ASP is mainly because we increase our premium assumptions for DPM from 10% to 20% in 2024F (following the Q1 premium), coupled with our macro recent increased assumption for USD appreciation against the VND to 3% in 2024, which together outweigh the cut in the Middle East price forecast. On the contrary, the lower 3.4% in the ASP of DCM is due to the cut in the Middle East price outweighing a smaller increase in premium assumptions, from 17% to 20%, and USD appreciation.

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