The impact of the energy crisis on chemical fertilizers is not over yet

It has been one year since the Russian-Ukrainian conflict broke out on February 24, 2022. During the year, natural gas and fertilizers were the two most affected petrochemical commodities. Judging from the current situation, although fertilizer prices are returning to normal, the impact of the energy crisis on the fertilizer industry is hardly over.

Starting from the fourth quarter of 2022, major natural gas price indexes and fertilizer price indexes around the world have all dropped, and the entire market is returning to normal. Judging from the 2022 fourth quarter financial reports of chemical fertilizer industry giants, although the sales and net profit of these giants are still considerable, the financial data are generally lower than market expectations. For example, Nutrien’s revenue in the quarter increased by 4% year-on-year to $7.533 billion, slightly higher than market expectations, but the year-on-year increase was lower than the previous quarter’s 36%. Net sales of CF Industries in the quarter rose 3% year-on-year to $2.61 billion, missing market expectations of $2.8 billion. Legg Mason has experienced a decline in profits. These enterprises generally believe that in the economic environment of high inflation, farmers have reduced the use of chemical fertilizers and controlled the planting area, which is an important reason for their relatively mediocre performance. On the other hand, it can also be seen that the global fertilizer market in the fourth quarter of 2022 is indeed cold, and it has exceeded the original market expectations.

However, even though fertilizer prices have dropped and even affected corporate profits, the market's concerns about the energy crisis have not diminished in the slightest. Recently, Yara executives said that market participants do not know whether the industry has emerged from the global energy crisis. At its root, the problem of high natural gas prices is far from being resolved. The nitrogen fertilizer industry still needs to pay high natural gas costs, and the cost of natural gas prices is still difficult to absorb. In the potash fertilizer industry, the export of potash fertilizers from Russia and Belarus is still a problem. The market has predicted that Russia's potash fertilizer exports will decrease by 1.5 million tons this year. It is not easy to fill the gap. In addition to rising energy prices, fluctuations in energy prices also make companies very passive. Due to the uncertain market, it is difficult for enterprises to carry out production planning, and many enterprises need to control production to deal with it. These are all potential destabilizing factors for the fertilizer market in 2023.