Urea prices to remain high in 2023F due to high gas and coal prices. The average Middle East urea price in 9M 2022 was USD740/tonne (+82% YoY), beating our expectation. Moreover, we expect natural gas (input for ~70% of urea produced globally) prices to remain high in 2023. In its October 2022 gas report, the International Energy Agency (IEA) raised its average 2022 gas price forecast by ~16% to ~USD29/MMBTU vs its July 2022 report. In addition, Chicago Mercantile Exchange (CME) futures as of October 2022 imply average LNG prices of USD35/31 per MMBTU in 2022/2023, respectively, suggesting a continuing decline of the urea supply from Europe next year, which should thus support urea prices. Furthermore, the outlook for coal (input for 30% of urea produced globally) prices remains high. Therefore, we broadly maintain our 2022-2027F Middle East urea prices. Specifically, we forecast Middle East urea prices of USD700/539 per tonne in 2022/2023, respectively. We assume USD350-400/tonne in 2024-2026F as we expect oil, gas & LNG costs to cool over the long term. See more in our July 20, 2022 Energy Sector Update.

We expect a 7% gap between DPM & DCM’s ASPs vs international urea prices in 2023-2026F. In 9M 2022, DPM & DCM’s ASPs were ~10-15% lower vs the average Middle East urea price, which was partly due to both companies providing support to farmers. We now assume a 7% discount for DPM & DCM’s ASPs vs the average Middle East urea price (vs a ~2% discount as previously). Although we maintain our Middle East price forecast, we raise DPM & DCM’s selling prices by ~5% due to the VND depreciating 10% against the USD in 2022.

We expect domestic urea consumption to pick up in 2023. According to DPM, domestic fertilizer demand declined ~20%-30% YoY in 9M 2022 due to high fertilizer prices. Therefore, we expect domestic urea consumption to recover in 2023 as we forecast urea prices to fall ~25% YoY that year. We also forecast flat YoY sales volume for DPM & DCM as we believe these two companies will reserve some inventory for 2023 and prioritize the domestic market over international markets following robust exports in 2022.

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