CF Industries, which in June announced the closure of one of its UK fertilizer factories, revealed it was temporarily shutting ammonia production at its other plant, citing high gas prices.
The US-based group, the UK’s top fertilizer producer, said on Wednesday that it was “to temporarily halt” production of ammonia, the basis of nitrogen nutrients, at its Billingham site, in the north of England, “due to market conditions”.
At current natural gas and carbon prices, the plant’s ammonia production “is uneconomical”, CF said, citing “marginal costs above £2,000 per tonne and global ammonia prices at about half that level”.
The price of natural gas, a key raw material for nitrogen producers, on the UK’s National Balancing Point (NBP) exchange “is more than twice as high as it was one year ago”, with futures suggest that values “will continue to rise in the months ahead”.
The NBP September contract stood on Wednesday at 550p per therm, with prices rising for further-ahead contracts out to 745p per therm for December.
‘High gas prices’
The announcement comes nearly a year after CF Industries last unveiled the temporary closure of the Billingham plant, as well as its Ince site in north western England, also citing “high natural gas prices”.
That shutdown was met with dismay both by UK farmers, for whom nitrogen is the key fertilizer, and the likes of the food industry, which use the carbon dioxide made as a byproduct of nutrient output for the likes of carbonated drinks and increasing the shelf life of fruit and vegetables.
The UK government within days of the move unveiled a support package which enabled Billingham to be restarted.
This time, CF Industries revealed that Billingham would remain open for upgrading imported ammonia to ammonium nitrate, allowing the group “to fulfil all” contracts for making the nutrient, as well as nitric acid “for delivery in the coming months”.
However, the halting of onsite ammonia production will mean that carbon dioxide output “will stop until the plant is restarted”, the group said, adding that it had notified customers of the decision.
Pipeline problems
The rally in prices of natural gas, which comprise about 60-80% of nitrogen fertilizer production costs, was supercharged in February after the invasion of Ukraine by Russia, the top exporter, and the follow-on Western sanctions.
European gas prices have been particularly buoyant, given the reliance of much of the region on supplies from Russia, which last month revealed it had cut its exports through the Nord Stream 1 pipeline, the main conduit to Europe, to just 20% of normal capacity.
Prices received an extra boost on Friday when Gazprom, the Russian state-controlled energy giant, announced pipeline maintenance that will shut from August 31 to September 2 for “routine maintenance”.
Capacity cuts
Many other European nitrogen producers have already announced production cuts, including Poland’s Grupa Azoty, which on Tuesday unveiled a cut to 43% of capacity at its Zakłady Azotowe Kędzierzyn fertilizer production unit
Consultancy CRU estimated last week that Europe’s nitrogen fertilizer makers had mothballed one-quarter of capacity because of the soaring gas prices.
The squeeze has prompted fresh gains in nitrogen prices, which had eased back in the spring.
‘Soaring prices’
In the UK itself, the AHDB bureau said that “over the past six months, we have seen domestic fertiliser prices soar.
“In July, the spot delivered price for UK produced ammonium nitrate was over one and a half times the price in July 2021, averaging £841 per tonne.”
The bureau added that “as natural gas prices have been rising significantly again over the past month, leading to further increases in fertiliser production costs, domestic fertiliser prices are likely to remain well above year earlier levels in at least the short to mid-term”.
