Europe’s fertilizer supply prospects suffered another blow as Yara International became the third producer this week to announce nitrogen capacity cuts, blaming soaring gas prices – which set fresh highs.
Norway-based Yara International, the region’s top nitrogen fertilizer producers, said on Thursday that it was “implementing further curtailments” which would expand to about 35% the proportion of its European ammonia capacity which it has mothballed.
The move follows Wednesday’s announcement by CF Industries that it was shutting ammonia production at its Billingham plant in northern England, although the site would remain open for upgrading imported supplies into fertilizer.
On Monday, Grupa Azoty, the Polish state-controlled industrial group, revealed that it would “temporarily shut down” its own nitrogen fertilizer unit, and a day later revealed a cut at its Zakłady Azotowe Kędzierzyn business “to the minimum capacity” of 43%.
The cuts add to curtailments which even as of last week prompted consultancy CRU to estimate that about one-quarter of Europe’s nitrogen capacity had been put on ice, thanks to elevated prices of natural gas.
‘Record high prices’
Indeed, Yara echoed peers in blaming “record high prices for natural gas” for its cutbacks.
Nitrogen manufacture, which requires high heat and pressure to draw the element from the atmosphere, requires large amounts of energy, which typically account for some 60-80% of production costs.
Gas prices in Europe have been buoyed not just by economic recovery from Covid lows, which has buoyed broader energy markets, but been particularly exposed to the knock-on effects of Russia’s invasion of Ukraine.
Europe is particularly reliant on Russian gas exports – which have been stemmed in a move the Kremlin says reflects infrastructure issues, but which many suspect is politically motivated, in retaliation for the military support that European governments are providing to Ukraine.
European prices on Thursday set fresh all-time highs, with the benchmark Dutch contract for September delivery leaping 5.7% at one point to touch E317.00 per megawatt hour, while the UK prices soared by 17.5% to 585.00 pence per therm.
‘Risk of nitrogen shortages’
Yara said that the impact of Thursday’s move would be to take European capacity curtailments to 3.1m tonnes in terms of ammonia output, or 4.0m tonnes in terms of finished product.
The group a month ago said its curtailments had reached 1.7m tonnes of capacity, in finished fertilizer terms, as it warned of the risk of a nutrient supply squeeze.
“There is a risk of nitrogen shortages and price spikes if [farmer] buying is delayed,” the group said, adding that the threat was was “especially” large “if natural gas availability continues to deteriorate”.
Yara shares stood 2.8% higher at NOK 417.90 in lunchtime deals in Oslo.