We cut our average Middle East urea price forecast for 2023 by 17% from USD539/tonne to USD450/tonne (90% of the pre-Russia Ukraine conflict level). As of mid-February 2023, the YTD average Middle East urea price is USD411/tonne, which is 29% lower than the Q4 2022 average. However, according to industry players, current urea prices may have bottomed, which should trigger higher urea demand in the coming months. In addition, gas prices in Europe have declined since late August 2022 but continue to remain high at USD18/MMBTU — 17% higher compared to the pre-conflict level and 3.8x compared to the pre-COVID level (Figure 9). Therefore, Europe may prioritize imported urea at competitive prices to self-produce and only some of the gas-based urea plants in Europe that stopped production in 2022 might resume operation in 2023. This year, a greater supply from China and Russia is contributing to the global supply of urea; however, it is still lower than before the Russia-Ukraine conflict. The increasing supply and recovery of demand should not pose further pressure on urea prices. Meanwhile, we broadly maintain our assumption for an average Middle East urea price of USD350-400/tonne in 2024-2027F (15-year average) as we expect oil, gas and LNG costs to cool over the long term.

We remove our assumed 7% gap between DPM and DCM’s average selling prices (ASPs) vs international urea prices in 2023-2027F. In 2022, DPM and DCM’s ASPs were ~4%-8% lower vs the average Middle East urea price, which was partly due to both companies providing support to farmers. As urea prices have fallen since October 2022 to affordable levels as of mid-February 2023, we believe both companies will not provide support to farmers in 2023-2027F. Following our lower Middle East urea price forecast and lower assumption for the VND’s depreciation vs the USD, we cut DPM and DCM’s VND-denominated ASPs by ~13%-14% in 2023F.

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