AFP, published on Thursday, August 25, 2022 at 12:27
Due to the lack of basic fertilizers of which Russia is a major supplier, food prices could explode next year, as well as world hunger, warn manufacturers and fertilizer market analysts, in unison with the ‘UN .
Synthetic fertilizers called NPK – made from nitrogen, phosphorus or potash – have never been so expensive: international prices have tripled between early 2021 and mid-2022.
“The difficulty of my job is predicting where they are going to be in the next 18 months,” Joel Jackson, managing director and fertilizer market analyst at BMO Capital Markets, admitted in July at an analyst conference in the US.
In Europe, NPK fertilizers are at a “historic” level, as they are indexed to gas prices, which make up 90% of the production costs of nitrogenous fertilizers such as ammonia and urea. However, natural gas continues to rise as Russia at war with Ukraine cuts off gas supplies to the old continent that supports Ukraine.
– Ammonia affected –
To stay profitable, several European fertilizer manufacturers are phasing out ammonia, which is made by combining nitrogen from the air and hydrogen from natural gas. Which hadn’t happened since the 2008 financial crisis.
At more than 300 euros per MWh of gas today, “compared to the 20 euros on average for the last 10 years”, “we have a big problem: it no longer works for all those who manufacture ammonia, because gas is 10 to 15 times more expensive than before,” Nicolas Broutin, head of the French subsidiary of the Norwegian producer Yara, Europe’s number one in nitrogenous fertilizers, told AFP.
Yara announced on Thursday that it would further reduce its ammonia production in Europe due to the price of gas, using only 35% of its production capacity in the old continent.
For the same reasons, it had already stopped its Ferrara factory in Italy twice since the beginning of the year and suspended production for three weeks at the Le Havre factory in France. In total, Yara will lose 3.1 million tons of ammonia and 4 million tons of finished products.
This week, the largest Polish producer, Azoty, announced that it was suspending 90% of its ammonia production, and the largest Lithuanian producer, Achema, also announced the closure of its plant on September 1.
In Hungary, Nitrogenmuvek is closed and the Borealis plant at Grandpuits in France will close in September and October, according to a publication by analyst firm Argus.
“The risk of shortages if all of Europe stops is real, there may be a resource problem because we manufacture fertilizer in winter before spring 2023,” adds Mr Broutin.
– Potash too –
Farmers are also at risk of running out of potash due to sanctions against Russia, one of the main producers, and sanctions against Belarus, “responsible for a sixth of the world’s potash production”, recalls Joël Jackson.
Before the war, Russia was the world’s largest exporter of NPK fertilizers.
The UN chief recalled that Russian fertilizers and agricultural products were exempt from sanctions and should be able to freely access world markets “without hindrance”, given the risk of a world food crisis in 2023.
Brazil, an agricultural power of which Russia is the main supplier of fertilizers, “has already become aware of its dependence that will weigh on the 2023 agricultural campaign,” underline the experts from the world guide Cyclops of raw materials.
Manufacturers fear “artificial demand destruction”, says Mr Jackson: Farmers risk rationing or skipping certain fertilizers that have become unaffordable. “You can already see it everywhere in Europe,” adds Mr Broutin.
“It is in 2023-2024 when the increase in fertilizer prices and possibly their lower use will be felt,” adds the Cyclops, which foresees a “significantly reduced” agricultural production in Africa.
In the globalized world of fertilizers, these disturbances, at the moment essentially European, suit some people.
To get rid of Russian gas, European producers have been importing ammonia from North America or Australia since the end of 2021, according to Broutin.
Some see it as an advantage over organic fertilizers (manure, etc.) or those made from “green” hydrogen.
Meanwhile, the world number one in fertilizers, the Canadian Nutrien, will increase its potash production to compensate for Russian or Belarusian failures. Joël Jackson predicts at least a doubling of Nutrien’s earnings this year.
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