Chinese ammonia export arbitrage closes amid declining international prices

The arbitrage window for Chinese ammonia exports has closed due to increasing domestic prices and shrinking margins amid declining international prices, reducing Chinese ammonia's competitiveness, especially in the Far East, according to traders in China.

Domestic ammonia prices in China have been on an upward trajectory following the Lunar New Year holiday, which took place from Jan. 28 to Feb. 4. In contrast, the international prices, specifically CFR Far East, have been in a downward trend, closing the price gap between domestic and international markets.

Platts, part of S&P Global Commodity Insights, assessed the domestic ex-works Jiangsu price at Yuan 2,600/mt (equivalent to around $360/mt) on March 14, up from Yuan 2,200/mt on Feb. 6. This marked a significant rise since mid-February.

The increase in domestic prices was primarily attributed to a rise in demand from the agriculture sector for the spring application season in China, as well as rising demand from the domestic acrylonitrile factories that gradually ramped up production in February.

Export price ideas from Lianyungang, have been indicated in the $370s/mt FOB this week. However, a Chinese supplier said, "Chinese ammonia exports have become less competitive, with the international prices falling below the export selling ideas."

International prices, particularly for CFR Far East, have been on a steady decline since mid-February. Platts assessed CFR Far East prices at $345-$380/mt on March 14, down from $405-$430/mt on Feb. 6.

This bearish trend was attributed to sluggish downstream demand in the Far East, due to low run rates at downstream factories, coupled with an increase in ammonia supply to the region from Southeast Asia, Australia, and the Middle East, according to sources.

Previously, when CFR Far East prices were above $400/mt before mid-February, Chinese ammonia cargoes were loaded from Dalian and Lianyungang for exports to South Korea. The price disparity allowed Chinese sellers to capitalize on the arbitrage opportunity and export ammonia to the Far East market. However, with the recent narrowing of the price gap, the arbitrage window has now closed.

"There are fewer discussions about exports from China right now, with buying ideas from Far East buyers now below $350/mt CFR," said a Chinese trader. Another supplier added that ammonia exports from China are inconsistent and largely depend on the existence of a profitable arbitrage opportunity.

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