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Market Update: US Catching Up with China’s Fertilizer Production

The United States is steadily catching up with China when it comes to fertilizer production. The US fertilizer industry is booming and the US output of urea, an important nitrogen-based fertilizer, went up by around 10% in 2016. The surge was boosted by a number of new and expanded plants in several US states including Iowa and Louisiana, which helped boost total capacity by 24%. At the same time, production in China, the world’s biggest fertilizer producer, went down by 7% last year and its exports plummeted by more than a third. These developments were largely facilitated by the current trends in global energy markets.

The American fertilizer boom is being helped by the shale revolution, which brought down the cost of gas. Moreover, the combination of horizontal drilling and hydraulic fracturing has helped production and cheap gas further kicked off the output of nitrogen-based fertilizers like urea, which is largely applied to soils, and ammonia, which is mostly mixed with other products or further refined to make urea. Meanwhile, China has experienced a sharp rise in the price of coal after Beijing had decided to curb output last year, limiting normally abundant supplies of the fuel. Roughly 75% of China’s urea is produced by first turning coal into gas.

“Low-cost shale gas in the US has transformed the competitiveness of a number of industries for which energy accounts for a high share of input costs,” Rajiv Biswas of IHS Global Insight commented, adding that “one of the biggest winners has been the US chemicals industry.” The surge in US fertilizer production is poised to continue this year as a number of plants are scheduled to start operations. The US ammonia output capacity could therefore jump by 2 million metric tons to around 11.4 million metric tons, Société Générale estimates.

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