C9: The price of Ammonia

Dr. Duncan Seddon, FRACI, CChem, MSPE, Duncan Seddon & Associates Pty Ltd.

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About 130 million tonnes of ammonia is produced each year. However, most of this material is used on local domestic markets so that only about 20 million tonnes is traded. The traded product is generally made in large scale plants producing 1000t/d or more using natural gas a feedstock. The principal use is for the production of fertilizer particularly urea although there is an increasing direct use of ammonia diluted in water. As well as fertilizer, ammonia is used for the production of ammonium nitrate which is used in blasting explosives in the minerals industry.

Here is a simple analysis of traded prices based on the published spot prices as reported by European Chemical News and ICIS Chemical Business from 1989 to 2012.

Up to 1993, world ammonia trade was dominated by the USSR and was a means used to monetize their large gas deposits. The USSR trade was totally integrated by the centrally planned state from gas production (in the north) to production facilities (in the Ukraine) to export teminals (on the Black Sea) to delivery in the Soviet merchant marine. Ammonia prices had low volatility and generally ranged from $100 to $200/t.

Following the break-up of the Soviet Union there was a rise in price and increasing volatility as the industry settled the consequences of the break-up with gas production in Russia and ammonia production in the Ukraine and export through the Black Sea. This stablised prices to about 2002 when, along with all other commodities there was a general rise in price and an increase in the price volatility.

In 2006 there was a sharp and rapid increase in ammonia demand which saw the price of ammonia head to $900/t prior to the 2008 collapse due to the Global Financial Crisis. The cause of the dramatic rise in price in 2008 appears to have been a combination of co-incidental plant shut-downs for maintentence, forced closures due to gas supply problems in Australia coupled with a rising demand in the US to support the seasons corn crop.

Since 2009 there has been a steady rise in the price of traded ammonia as supply has failed to keep up with demand to reach the $400 to $600/t range. Since the production cost of ammonia is dependent on the underlying price of gas as feedstock, the future of international gas prices will be a determining factor in the price of ammonia on the international market and at the time of writing the future of gas prices is not clear.

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