Europe’s fertilizer crisis tightened after Yara International ASA cut production in the face of rising gas prices, putting further pressure on food supplies as the cost of living crisis intensified.
Norwegian producers said they would further cut ammonia production capacity by about a third, in addition to a spate of fertilizer curbs and closures in Europe announced this week. We estimate that we are currently losing about half of our ammonia production capacity and 33% of our nitrogen fertilizer business.
Russia’s squeeze on gas flows, a major source of fertilizer and powering Europe’s heavy industry, is hitting everything from aluminum smelters to sugar refineries. Consumers already suffering from rising energy bills could be hit again as reduced fertilizer availability raises the cost of agricultural inputs, constraining the use of key crop nutrients and lowering productivity. There is a nature. It could rekindle food inflation.
“The constant pressure on food prices will never go away,” Chris Elliot, a food security expert and professor at Queen’s University Belfast, said by phone.
European fertilizer makers are the hardest hit because of their dependence on Russian gas. The industry also has to contend with US and European Union sanctions on potash sales from Belarus, and China’s move to curb shipments. Russia’s nutrient trade is suffering from self-regulation by many shippers, banks and insurers, as well as difficulties dealing with exports from Russia, a major supplier of key crop nutrients. is.
Demand from farmers could decline if gas prices remain high and fertilizer costs rise for the new planting season, according to Michael Magdovitz, a crop analyst at Rabobank in London.
“The impact of the ongoing crisis will stress wheat and corn farmers, potentially constraining their acreage and yield potential,” he said in an email.
Yara said it has reduced its use of ammonia to about 35%. In total, the latest reductions will result in savings equivalent to 3.1 million tonnes of ammonia and 4 million tonnes of finished products across the European production system. Gas is the largest input for most nitrogen fertilizers, including ammonia.
Yara’s cuts come a day after CF Industries announced it would halt ammonia production at its remaining UK plants. Acema AB, Lithuania’s top fertilizer company, temporarily halted ammonia production in September, while Hungary’s sole producer Nitrogenmuvek Zrt. Earlier this week, Grupa Azoty, Poland’s largest chemical company, also cut ammonia production, while Anwil, a division of oil company PKN Orlen SA, halted production.
Oslo-based Yara said it uses global procurement and production systems where possible to optimize operations and meet customer demand. This includes the use of imported ammonia where possible. According to the CRU, it is now much cheaper to import ammonia into Europe than to produce it there.
Still, Yara’s second-quarter earnings rose 23% to $664 million on higher fertilizer prices. Farmers without access to credit, subsidies or cash reserves to pay higher nutrient prices will suffer first, according to Bloomberg Intelligence analyst Alexis Maxwell.
Wholesale fertilizer prices soared to multi-year highs after Russia’s invasion of Ukraine roiled commodity markets. Prices had fallen recently, but that trend has reversed as a surge in gas has severely cut European production.
Lukas Pasterski, spokesman for industry group Fertilizers Europe, said: “It is becoming very clear that the European energy market is broken. “The current system cannot handle the current situation.”