Pankaj Oswal – Urea gas enters peak period for US buyers

The global market for Urea has softened its prices as foreign products are becoming more readily available. Urea is a key source of nitrogen used in fertilizers and is therefore of great interest to those on the production side.

A recent report on the state-of-play of the product in the US by Morgan Stanley was particularly telling. In particular, the creeping expansion of Chinese products globally is bringing downward pressure on prices in the States and India in particular. Russian and Indonesian Urea is also flooding the now buyers’ market.

Whilst this is highly seasonal, Urea develops best in spring months; the 4.2% fall in price is enough to grab the attention of fertiliser producers globally. Most tellingly was the 75% increase in Chinese production, year-on-year, as the country increasingly specialises in the area. As the report states:

‘Chinese urea exports were 1.3M mt in September, up 75% vs. 2011. The increase was likely driven by shipments to fulfill India’s IPL tender on October 16 for 1.3M mt and some product sent to the premium U.S. market. Year-to-date exports are 2.6M mt vs. 1.9M in 2011. Total Chinese exports in 2011 were 3.6M mt’

Compelling figures as it reveals the juggernaut of Urea production in the economy. Based on these figures it would seem that Urea is likely to continue to be imported to the US in large quantities in the coming years.

By Pankaj Oswal

The full report is visible via the link below. f.doctm.com/ae005ae3/9rin2t.pdf

Pankaj Oswal – China’s shale gas gambit: How it could turn the tide

The giant of shale gas has awoken as the Chinese Government has taken the unprecedented step of issuing a tender process to foreign companies to access to the country’s shale gas reserves.

China is said to preside over the world’s largest shale gas reserves and inviting global corporates to bid on blocks is could expose the potential for the rich source to alter the global energy game.

Most recently, the authorities have set aside 20 sites and relaxed entry barriers to allow a more diverse range of companies to participate in the tender process.

But before this expansion is heralded as major development in the global energy trade; the challenges on the ground have yet to have been met. Inferior infrastructure is plaguing the trade, as is a lack of domestic experience and knowledge. Whilst this move is promising in terms of providing a new and cleaner form of energy for the future that will reduce, domestically and internationally, the dependency on less clean alternatives it is only the start of a revolution for shale gas. Chinese shale gas is unlikely to have a meaningful downward impact on the energy source’s pricing globally as it will be some time before companies will be able to convert the high fixed costs into profit and perfect their extraction processes in the region.

All eyes should be on China in the global shale gas industry as it could hold the key for the long-term take up of the resource.

By Pankaj Oswal

The supply chain is struggling to keep up with the US burgeoning Ammonia production – Article

Telling article indicating that ammonia technology is exceeding industry expectations.

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Ammonia barges needed for new US production

Houston, 12 December (Argus) — With new nitrogen capacity expansions announced in the US, industry players say the ammonia barge fleet needs to be expanded.

Barge line operators say the existing fleet of 33 ammonia barges, each able to carry 2,500st (2,268mt) is sufficient to meet current demand. The US has production capacity of around 10mn st/yr ammonia – much of which is upgraded to other nitrogen products – and typically imports 5-6mn t/yr. However, the US ammonia barge fleet is under long term charter, frustrating some suppliers interested in entering the market and unable to find barge supply. Only the estimated cost of building a new ammonia barge, around $13-15mn, is another difficulty in and of itself as it takes years for buyers to see the return on their investment.

“I don’t know of anybody officially contracted to construct new ammonia barges [right now],” said Kevin Conway, vice president of Southern Towing, which owns 14 of the existing fleet. An additional 10 are owned by Kirby and six by CF Industries. “I know a few ship yards are looking at it to see if it’s feasible, but we haven’t heard of anything official,” he said.

For comparison, a dry bulk barge can be constructed for around $650,000 and takes a month or so to build. But a brand new pressurized ammonia barge with refrigeration unit, meeting all the latest Coast Guard requirements, has not been built in four decades. Conway estimates construction time might take up to a year – but likely could not start anytime soon.

“Shipyards are contracted out for the next two years building new liquid tank barges to carry crude oil, there’s a huge backlog,” Conway said.

The current ammonia fleet is around 40 years old, meaning maintenance can be time-consuming and expensive and can sometimes cost over $800,000 for the service. While it would seem these expenses might prompt new builds, some in the industry note there is an incentive to keeping the barges under long-term contract as it deters new entrants to the market and gives the barge lines consistent business. Right now, Koch, CF Industries and Transammonia have the majority of barges under long term charter.

“If the barge sits there, [the barge owners] get paid. If it’s moving, they get paid. It’s a win-win,” said one ammonia transportation provider.

The trend of putting ammonia barges under long-term contracts developed in the early 2000s when natural gas prices increased, squeezing the margins of ammonia producers and prompting many plants to shut down, effectively drying up the spot ammonia barge market.

Looking ahead, the industry sees logistical constraints in view of the upcoming new nitrogen expansion projects such as CF Industries’ expansions in Iowa and Louisiana, Orascom Construction Industries’ (OCI) project in Iowa and several other noted brownfield and greenfield projects all due for completion between 2016-2018.

“Location will impact how many additional barges the industry will need,” said Conway. “If the plant is in the Gulf, they’ll need more barges to move product up [to Corn Belt], but if it’s in Iowa, it’s closer to the customer base so the producer wouldn’t need as many.”

While some ammonia is moved via rail, a majority of imports are moved inland by barge, and several production sites, such as Koch’s unit in Enid, are located on pipelines and able to inject directly into the NuStar or Magellan pipelines.

Rail tariffs for ammonia transport have more than tripled in recent years as rail freight providers want to avoid the burden of risk that comes with carrying a hazardous chemical and the potential catastrophic nature of an accident. Ammonia is distributed most frequently by truck, carrying 18-20st each. While the risk for road accidents is increased compared with other transport methods because of the number of cars on the road, the damage of an accident involving such a small quantity is far smaller than the impact of an accident involving several dozen ammonia rail cars, each carrying around 80st of product.

One example underpinning the rail lines’ fears of carrying such products is the 2005 Graniteville, South Carolina, train collision. The train was carrying chlorine, and the accident killed nine people, injured over 200 and took nearly two weeks for HAZMAT crews to clear.

Several ammonia suppliers note that the pipeline system is at capacity right now and barging is the most cost-effective transport route. Barge operators say barging is one of the safest options, with the river acting as a buffer should any accidents occur. However, US regulations may make it difficult for new ammonia producers, such as Egyptian-owned OCI, to build new barges even if there is interest.

“Foreign companies have to comply with the Jones Act, so they cannot build the barge themselves for domestic transport unless it’s only going between their own facilities,” said Conway.

In this case, he said the options are to try and work with the companies who already have the charters or perhaps persuade domestic companies to build the new boats needed. Barring these developments, the industry may see more ammonia trucks distributing product in the coming years.

The full article is visible via the link below.

http://www.argusmedia.com/pages/NewsBody.aspx?id=826449&menu=yes

KBR awarded right to build Nigerian ammonia plant – Article

A thought-provoking article about the growing ammonia work being undertaken in Africa by global companies.

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KBR Awarded Ammonia Technology License Agreement by Indorama Eleme Fertilizer & Chemicals Limited

HOUSTON–(BUSINESS WIRE)–

KBR (KBR) announced today that Indorama Eleme Fertilizer & Chemicals Limited (“Indorama”) has selected KBR to provide ammonia technology for its planned grassroots ammonia plant in Port Harcourt, Nigeria.

KBR will license its ammonia technology to Indorama to operate a 2300 MTPD ammonia plant based on KBR’s leading Purifier technology. Indorama’s selection of KBR’s Purifier Technology was based on several factors including the highest demonstrated plant run lengths and the lowest energy consumption.

“We are very proud that Indorama has selected KBR for this world-scale fertilizer complex in Nigeria,” said John Derbyshire, President KBR Technology. “Africa is considered one of the largest emerging markets for the fertilizer business and it is a great source of pride for us to be associated with one of the world’s most dynamic companies for this breakthrough project.”

“Indorama has a long-standing relationship with KBR,” said Manish Mundra, Managing Director Indorama Nigeria. “As the licensor for Indorama’s ethylene plant in Port Harcourt, KBR has delivered strong value to Indorama’s existing operations and we are confident our selection of the Purifier technology will provide us with the world’s leading ammonia technology for this next phase of our company’s growth.”

The full article is visible via the link below.

http://finance.yahoo.com/news/kbr-awarded-ammonia-technology-license-211300779.html

Fertilizer price likely to fall – Article

An interesting article about the price of fertilizer in the short-term:

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Softer fertilizer prices seen likely over winter

Farmers looking to book fertilizer ahead of next spring can expect to see some softening of prices over the winter months, before seasonal demand picks up and costs rise again, according to a fertilizer market analyst.

For nitrogen it will depend on the product, with ammonia likely to see the highest prices in relation to urea and liquid nitrogen, said David Asbridge, president and senior economist with NPK Fertilizer Advisory Service at Chesterfield, Missouri.

Ammonia stocks are getting tight, but solid production in the U.S. will leave the market with adequate supplies in the spring, said Asbridge. He expected ammonia prices would soften over the winter as inventories are rebuilt. However, with expectations for large corn acres next spring, the resulting demand will eventually lead to a seasonal bump in the spring.

With urea, issues with the low Mississippi River are causing some boats to back up in the Gulf Coast, said Asbridge. Urea prices may have a little room to the downside, he said, but noted the market is likely already close to its bottom for the winter.

It’s a similar story in liquid nitrogen, as the U.S. is both importing and producing at record levels. He expected inventories would build through the winter, but prices would still jump in the spring.

Farmers are generally coming off a good cash year in North America, which means they will likely start booking product for the spring season before the New Year, said Asbridge. He noted high commodity prices should make fertilizer a “good buy for farmers.”

In the U.S., farmers will use six to eight per cent less phosphate and potash on their 2013 crops, said Asbridge. He said there were large applications ahead of the 2012 crop, but production failed to live up to expectations due to the drought conditions seen across much of the growing area. As a result, the phosphate and potash is still in the ground in many cases.

However, nitrogen needs to be re-applied each year, as it does not carry over well in the soil. Soil that is too dry will see its nitrogen dissipate into the air if there is no water to hold onto. If the ground is too wet, the nitrogen leaches too far down into the soil for the plants to utilize, said Asbridge.

Phosphate and potash prices are also forecast to be stable, or down slightly, through the winter before moving back up in the spring.

India and China are also not stepping up to the table to renegotiate contracts for potash the coming year, said Asbridge. There’s also an oversupply of potash in Canada and Eastern Europe right now.

Phosphate came out of the spring season with tight inventories, but export demand has been relatively slow as India has cut back on its demand, said Asbridge. That lack of demand is causing stocks to start to build up, which should put some pressure on values.

If India does step up and start buying, then there could be some activity in the phosphate market, but if they don’t, Asbridge expected prices would hold where they are, before seeing a seasonal bounce in the spring.

— Phil Franz-Warkentin writes for Commodity News Service Canada, a Winnipeg company specializing in grain and commodity market reporting.

The full article is visible via the link below.

http://www.canadiancattlemen.ca/news/softer-fertilizer-prices-seen-likely-over-winter/1001891459/

Pankaj Oswal media: MFS fall a goldmine for liquidators

LIQUIDATORS and lawyers associated with collapsed Gold Coast property and financial services group MFS have collected $44.733 million in fees, including millions of dollars in legal fees, $1.53m in disbursements, and a further $308,012 for media consultancy services, according to a secret report.

The confidential summary of costs, prepared by Ferrier Hodgson, reveals MFS liquidator Bentleys collected $15.69m plus expenses since its appointment in September 2009, while lawyers Henry Davis York have reaped more than $20m in fees even though the two central pieces of MFS litigation involving KPMG and the Fortress Liquidation are continuing.

MFS, which has since been renamed Octaviar, collapsed in January 2008 owing more than $2.7 billion to creditors including the Australian Taxation Office, Queensland’s Public Trustee — which is claiming $350m — Challenger, Octaviar Investment Notes, and thousands of mums and dads who had invested in the MFS Premium Income Fund, which is claiming $202m.

The five major creditors sit on the MFS creditors committee, with insolvency firm Ferrier Hodgson representing Octaviar Investment Notes, which has a claim of more than $300m.

Ferrier Hodgson liquidator Will Colwell said in a letter to Bill Fletcher of Bentleys, obtained by The Australian, that he is concerned by the “significant levels of costs incurred”.

“These levels of costs are of serious concern . . . to the public trustee himself and to the noteholders he represents,” Mr Colwell said.

“As discussed yesterday, after $44m and three years, the (MFS creditors) committee is none the wiser as to whether both (legal) actions should be proceeded with,” Mr Colwell said.

The legal actions relate to a class action against KPMG, auditor of the MFS compliance plan, and also to New York investment house Fortress, which had almost $190m worth of its Australian assets frozen after a complaint by the MFS liquidators.

The Supreme Court of Queensland ruled in favour of the MFS liquidators, who argued that Fortress had received preferential payments from MFS while it was insolvent. But Fortress recently failed in a bid to have the freezing order thrown out in the NSW Supreme Court, arguing it had been “prejudiced” by the terms of the liquidators’ lawsuit.

In his November 22 letter to Bentleys, Mr Colwell demanded a full cost-benefit analysis to pursue the KPMG and Fortress claims, adding that “going forward, the (MFS creditors) committee, needs to have a further discussion about reining in costs, and ensuring creditors are getting value for money, as the costs to date have been significant”. The creditors committee should receive a “detailed fee budget on a three-month rolling basis with a very specific scope of work”.

“Alternatively, the committee could consider fixed fee caps for some or all of your future work . . . at the moment, all the work you are seeking to be paid for is effectively open-ended.”

Mr Colwell invited Bentleys on July 30 this year to advise how much time had been written off since the start of the litigation, but he noted that Bentleys had not answered that query.

There has been little cost relief.

Lawyers Henry Davis York agreed in August to a 10 per cent fee discount from March 1, 2012. But Mr Colwell told Bentleys: “This is not satisfactory and you need to revisit the position with them.”

Once the full analysis of the KPMG and Fortress claims is received, the creditors committee will consider whether to proceed with either or both claims, “or cease them and call for the remaining funds to be distributed and the liquidation brought to an end”, Mr Colwell said.

Henry Davis York partner Scott Atkins said the MFS-Octaviar litigation is one of Australia’s most complex in financial and legal terms.

“The fees incurred throughout the liquidation by both the liquidators and their legal advisers (including Henry Davis York, US attorneys, other Australian legal advisers, senior counsel, junior counsel and experts retained by the liquidators) reflects the necessary, extensive and complex nature of the issues which the liquidators have dealt with and continue to deal with,” Mr Atkins said yesterday.

Mr Atkins said more than $140m had already been recovered. “There are further claims by the liquidators pending against various parties which, if successful, will result in additional recoveries for creditors in excess of $200 million.”

But one of MFS’s thousands of creditors was outraged by the $44.733m figure yesterday.

“There is no mechanism in the country to control the expenditure of liquidators. The system has failed to protect the people it was built to serve,” he said.

The MFS-Octaviar administration is not the only example of significant liquidator expense.

The collapse of fertiliser king Pankaj Oswal’s Burrup Holdings has so far reaped creditors $56m. They include PPB, which has reportedly been paid $19m in fees from the collapse, and Freehills, which has garnered $13.8m.

The full article is visible via the link below.

http://www.theaustralian.com.au/business/property/mfs-fall-a-goldmine-for-liquidators/story-fn9656lz-1226530807285