Falling Demand Leads Ammonia Prices to Carry Bearish Momentum in China and the USA

Ammonia market experienced bearish sentiments during the inaugural week of June 2024, in the Asian and North American market. Despite the rising costs of natural gas, the essential feedstock for Ammonia production, its cost pressure had a limited impact on Ammonia prices during this period. The key factor behind this price dip was subdued purchasing activities for Ammonia in the global market coupled with stockpiled inventories prompting towards narrowed disparity between demand and supply thus supporting the price dip.

The North American Anhydrous Ammonia market witnessed a 2.7% decline in the first week of June 2024, continuing the downward trend observed in the previous week. The primary factor contributing to the price decline was the subdued purchasing activity from key downstream fertilizer markets. This reduction in demand occurred despite the ongoing planting season for major crops such as rice, barley, and corn. Unusually, this market behaviour was largely driven by extreme heat waves across the region, which compelled many consumers to halt their planting operations. These climatic challenges disrupted the normal seasonal demand for fertilizers, resulting in a softer market for anhydrous Ammonia.

Additionally, manufacturing units producing Ammonia were operating at a healthy rate, ensuring a stable supply. The manufacturing Purchasing Managers' Index (PMI) was revised higher in May 2024 compared to the previous month, indicating a modest improvement in the health of the manufacturing sector. This upward revision reflected growing business confidence and positive expectations about the sector's future. As a result, there was an increase in hiring, a renewed rise in purchasing activity, and a build-up of stocks of finished goods. Moreover, data released by the Federal Reserve Economic Data (FRED) suggested a significant improvement in the Producer Price Index (PPI) for nitrogenous fertilizer manufacturing, which rose from 404 points in March 2024 to 414 points in April 2024, with expectations of further increases. This improvement in the PPI index signifies higher prices for nitrogenous fertilizers, which could indicate strong demand and favourable market conditions. These positive developments in the manufacturing sector, including increased hiring and purchasing activity, contributed to the modest production levels of Ammonia.

Similarly, in the Chinese market, The Chinese Ammonia market experienced a notable decline of 2.2% during the first week of June 2024, following a period of price stagnation the previous week. A crucial aspect of this trend is the lack of new bids or inquiries from the international market. Market participants appear to be adopting a wait-and-see approach, anticipating further price reductions due to ongoing market inactivity. This sentiment has contributed to the persistence of low prices. Survey findings indicate that even with the imminent planting season, the fertilizer market's procurement enthusiasm remains lacklustre. This is a critical period when demand typically rises, but the current market dynamics have led to a subdued response. Additionally, the reduced demand for various downstream derivatives such as Urea, Acrylonitrile, and amino acids has exacerbated the downward pressure on Ammonia prices. These derivatives, which play a significant role in the agricultural and chemical sectors, are experiencing lower consumption rates, further impacting the Ammonia market.