The International Fertilizer Industry Faces Multiple Challenges

Recently, due to the geopolitical situation in Europe and its derived economic impact, the international fertilizer industry is facing multiple tests. In terms of nitrogen and phosphate fertilizers, natural gas prices in Europe have risen, causing downstream nitrogen fertilizer prices to rise all the way. In terms of potash fertilizers, the logistics problems of potash fertilizers in Russia and Belarus have affected the global potash fertilizer supply chain and forced potash fertilizer importing countries to urgently find alternative solutions.

The problem of nitrogen fertilizer and phosphate fertilizer raw materials leads the price increase

Affected by the conflict between Russia and Ukraine, the price of natural gas has been rising in recent days, and the prices of nitrogen and phosphate fertilizers have also risen. Although the price of natural gas in Europe has fallen to the price on February 24 at the time of writing, the high price of natural gas in Europe in the previous month or so has had a profound impact on the market of nitrogen and phosphate fertilizers.

After the escalation of the Russian-Ukrainian conflict, the price of natural gas futures in the Netherlands once exceeded 300 euros/MWh during the session. Throughout March, the futures price was above EUR 100/MWh until mid-April, when the futures price continued to slide. At the close on April 14, Dutch natural gas futures fell to €95.62/MWh, the lowest level since February 24.

The rise in natural gas prices in March led to a sharp increase in the cost of nitrogen fertilizer production, even though natural gas prices have fallen, and the question of whether Russian gas can stabilize supplies is also a headache for producers. In Europe, many fertilizer producers had to cut or stop production. In March, Yara temporarily cut production at its plants in Ferrara, Italy, and Le Havre, France, and Borealis also cut ammonia capacity. Germany's BASF said that the company has two fertilizer production units with a production capacity of 1.42 million tons of ammonia and urea, accounting for about 11% of the total fertilizer production capacity in Western Europe. The company believes that the shortage of natural gas in Germany will have a dual impact on chemical production, one is that there will no longer be enough energy supply in the production process of chemical companies, and the other is that the production of synthetic ammonia and other fertilizers will have to be cut. On the other hand, the trade blockade against Russia by the West and major shipping companies will also lead to an increase in nitrogen fertilizer prices, which will have a worsening chain reaction.

In fact, after February 24, the global urea price experienced a short-term surge. Among them, the price of urea in Egypt, which is highly dependent on urea in Europe and Russia, took the lead in rising, rising for 5 consecutive days. The FOB price of urea in Egypt rose from US$590/ton to US$1,150/ton within 3 weeks. Subsequently, the price rise spread to the world, and the price of urea all over the world rose to above the US$1,000/ton mark. At the same time, the supply demand decreased, and the market was once stagnant at a high level. Until the first ten days of April, in order to break the stagnation of the market and the price of natural gas fell, the price of urea fell below US$1,000/ton. In the future, as the conflict between Russia and Ukraine has not yet ended, the possibility of natural gas supply cuts in Europe still exists, and the raw material problem in the nitrogen fertilizer market is far from being alleviated.

Phosphate fertilizer prices have been on the rise. In late February, the quotation of monoammonium phosphate/diammonium phosphate in Brazil was in the range of 900~920 US dollars / ton (CIF price). However, by early April, the price of monoammonium phosphate in Brazil had soared to $1,300/ton.

Potash fertilizer importing countries are looking for alternatives

The situation for potash fertilizers is even more severe than for nitrogen and phosphate fertilizers. Russia and Belarus are the world's main exporters of potash, and Western sanctions have all but interrupted the export of potash to Europe and the Middle East. Therefore, potash fertilizer importing countries not only have to face the soaring price of potash fertilizer, but also face serious supply shortage.

Take Brazil, an important food country in the world, as an example. In terms of price, the CIF price of Brazilian potash fertilizer has soared from US$300/ton a year ago to US$1,200/ton now, and there is still room for growth. However, despite Brazil's rich mineral resources, 85% of Brazil's domestic potash fertilizer is still imported, half of which comes from Russia and Belarus.

As a major agricultural country, potash fertilizers are vital to the cultivation of agricultural products such as soybeans, corn, coffee, wheat, rice, sugarcane and fruit exported by Brazil, accounting for 38% of Brazil's crop nutrients in 2021. However, Brazil's potash stockpiles can only last three months' supply. The country is stepping up talks with Yara and Legg Mason to increase potash supplies. In addition, Brazil is also willing to strengthen the development of its own resources. Brazilian President Jair Bolsonaro stressed the need to speed up the development of relevant resources in the country.

In India, on March 21, India Potash Fertilizer Co., Ltd. and Israel Chemicals signed a potash fertilizer supply agreement. In five years, Yihua will supply 600,000 to 650,000 tons of potash fertilizer to India every year. In the context of the current shortage of potash fertilizer supply, this move is also a move by India to strengthen the diversification of fertilizer supply.

In addition, in North America, North American potash fertilizer producers are preparing to expand production capacity in order to alleviate the shortage of potash fertilizer. In March, Canadian fertilizer maker Nutrien said it planned to increase potash production by nearly 1 million tonnes this year to around 15 million tonnes to deal with supply uncertainty in Eastern Europe and reduce the impact on global food security. However, Nutrien expects that most of the new production will come in the second half of the year. Nutrien expects the company's 2022 potash production to increase by nearly 20% from 2020, accounting for more than 70% of new global production over the same period. However, market participants believe that although Nutrien has announced that it will increase production during the year, compared with the global potash fertilizer supply gap that may be caused by supply disruptions in Eastern Europe, Nutrien's expansion is still difficult to fill.

The shortage of chemical fertilizers may cause derivative disasters

The geopolitical conflict in Europe has caused serious damage to the global fertilizer industry chain. Fears of supply shortages began in March as buyers in some regions scrambled to find alternative sources from other regions, setting off a buying spree that pushed up fertilizer prices. At the same time, the prices of raw materials for the production of chemical fertilizers have soared, making the prices of chemical fertilizers soar further. Under such a market environment, the most affected are fertilizer importing countries, especially some agricultural countries in Asia, Africa and Latin America without fertilizer production and bargaining power. The original fertilizer trade flow has been blocked, or some countries have no fertilizer available. This will cause derivative damage to agriculture around the world.

In March, the representative of the Plant Protection Bureau of the Ministry of Agriculture and Rural Development of Vietnam said that the current fertilizer price in Vietnam is at the highest level in the past 50 years. According to reports from Vietnam, fertilizer prices will continue to rise in the near future, and prices are not expected to show signs of "cooling down" in the short term. To this end, Vietnam is considering suspending the export of fertilizers to reduce the pressure on domestic market prices. In the first two months of this year, Vietnam's fertilizer exports to most markets increased significantly year-on-year. Among them, the largest export market is Cambodia, with an export volume of about 53,000 tons and an export value of over 25 million US dollars. In the context of soaring fertilizer prices, the source of fertilizers in Cambodia has become a problem.

In Africa, Zimbabwe and Kenya have both reported fertilizer shortages forcing growers to re-use farm manure. In Africa, food production has declined due to factors such as farmers reducing the amount of chemical fertilizers and planting areas, and the risk of food shortages is also increasing. The Tanzanian government has introduced an agricultural transformation plan in response to rising fertilizer prices. African countries face the challenge of soaring fertilizer prices, and trade policies to ensure the free flow of food across the region are crucial, said Albert Zofak, chief economist for the World Bank's Africa region. With limited fiscal space, policymakers around the world should seek innovative solutions, such as temporarily reducing or eliminating import tariffs on food, to ease the pressure on people's livelihoods.

In Peru, the Peruvian government has declared a state of emergency in its agricultural sector. The country's acreage has fallen 0.2 percent since August last year due to higher fertilizer prices, while Peru's imports of grains for animal feed have also fallen due to cost concerns, the decree said. The government is now drafting a plan to increase the country's food supply. The price of urea has soared nearly fourfold due to supply shortages, increasing costs for growers, data from the Peruvian Rice Producers Association showed.