“Given the fluctuation in vessel sizes, port procedures, contracts and voyage destinations, Yuzhny’s ammonia freight price is extremely subjective and should be determined on a case by case basis,” said John Foley, research director for RUXX.
Because Nitrochem, Transammonia and Yara, Yuzhny’s top ammonia exporters, keep their long-term contracts with buyers confidential, the published numbers are unreliable, Foley said.
Additional reasons Foley cited are Yuzhny’s high port expenses: the ammonia prices there are higher by about $3-5 per metric ton.
The voyage from Yuzhny may take up to four weeks to many parts of the globe, compared to Trinidad, a major U.S. supplier. To stay competitive, the U.S. buyers ask for an additional discount of $5 per metric ton.
Yuzhny’s inefficient storage and customs add $1 per metric ton each day, plus another $1 due to transit restrictions for larger vessels.
Furthermore, large scale buyers often get a discount, not reported by the port. “Frequently, a seller agrees on a fixed discounted contract price for an entire year, which may even lead to a pre-agreed swing plant shutdown in the United States. These contracts post a 10-15% price difference compared with the prices that Yuzhny publishes,” Foley said.
The prices that do get published still fluctuate. Agro Perspectiva, a Ukrainian consulting company in the agrarian market, recently noted a slump in May’s ammonia demand. “The general ammonia price on the Black Sea ebbed by $60-70, down to $310-315 per ton, and producers have had to cut production to balance the market and set a minimal price,” the May 2010 report stated. “Ammonia prices will somewhat depend on the U.S. demand” and on the Asian markets, said the report.
The overall ammonia demand is steadily booming. “World demand for fertilizer had risen 14 percent in the past few years,” said Gary Hergert, Ph.D., an agronomy expert at the University of Nebraska-Lincoln.
Ukraine remains one of the key players in the international fertilizer market. “Eastern European countries in the Black Sea region (Russia and Ukraine) have relatively low ammonia production costs because of relatively low natural gas prices in the region,” said USDA economist Wen-yuan Huang in a 2007 report.
The annual U.S. imports of ammonia skyrocketed to 8.4 million from 3.9 million tons in less than a decade, Huang said. He predicts a continuous decline in U.S. ammonia production and an increase in U.S. imports. However, Eastern Europe’s presence is contingent on shipping costs and on natural gas prices in Ukraine and Russia, Huang said.
Full report on ammonia prices is available for download.