We cut our average Middle East urea price forecast by 11% to USD400/tonne (75% of the pre-Russia/Ukraine conflict level and 150% of the pre-COVID level) for 2023 and 13% to USD350/tonne (15-year average) for 2024 while maintaining our assumption of USD350/tonne in 2025-2027F. As of March 27, 2023, the spot Middle East urea price was USD303/tonne and the YTD average was USD373/tonne — 36% lower than the Q4 2022 average. Furthermore, in its February 2023 gas report, the International Energy Agency (IEA) lowered its gas price forecast for 2023 by ~70% to USD11/MMBTU vs its October 2022 report (Figure 9) due to an expected 9% YoY increase in LNG inflows to the EU, high gas inventory levels due to the rapid development of new regasification terminals in northwestern Europe, and warmer-than-expected weather. As such, gas-based urea plants in Europe that stopped production in 2022 are more likely to resume operations in 2023, thus increasing the urea supply from Europe. Meanwhile, a greater supply from China and Russia is contributing to the global supply of urea this year. We maintain our assumption for an average price of USD350/tonne in 2025-2027F as the Russia & Ukraine conflict continues, which suggests a potential rebound in EU gas prices and a lower urea supply in the EU over the longer term.

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