Fertiliser capacity shrinks as European gas prices soar

Two Polish companies join growing list of fertiliser makers cutting output because of spiralling energy costs

European producers are not able to compete with the high cost of gas.

Europe’s ammonia production capacity shrank even further with more reductions expected as two Polish companies joined a growing list of fertiliser makers cutting output because of rocketing energy costs.

Azoty, Poland’s largest chemical company, trimmed ammonia output on record gas prices, while Anwil, a unit of oil company PKN Orlen halted production of the nutrient.

That means about 38% of Europe’s production capacity for the key fertiliser ingredient is now reduced or completely curtailed, according to Chris Lawson, an analyst at researcher CRU Group.

Azoty describes itself as the second-biggest producer of mineral fertilisers in the EU. The company is among the largest buyers of natural gas in Poland, consuming more than 20 gigawatt hours of the fuel every year.

“This is confirmed reductions only,” Mr Lawson said. “The reality is likely higher."

More output curbs should be expected in Europe, where the cost of gas has soared more than 500% from levels a year ago in an energy crisis fanned by Russia’s war in Ukraine.

Production may shift overseas

Producers such as Yara International, Borealis, and Fertiglobe have all warned of deteriorating conditions in Europe, while others see production shifting overseas.

“In the current situation where the price of gas in Europe is eight to 10 times higher than in the US, European producers are not able to compete on the global market,” said Lukas Pasterski, a spokesman for Fertiliser Europe, a lobby group. “This is the case especially if you can’t import ammonia from outside of Europe.” 

Shrinking ammonia supplies will only intensify if there’s a full shutoff of Russian natural gas, and German authorities have voiced concerns about the need for gas rationing during the coldest months of the year.

Some chemical and fertiliser manufacturers are considering cheaper non-European ammonia, with BASF saying last week that it’s considering external sources as a “risk mitigation consideration in the event of a major curtailment of natural gas volumes”.

Europe’s woes are proving an opportunity for fertiliser makers outside of the region. Mosaic, a US-based crop nutrients company, says it will continue production to meet the global demand and will continue to tap attractive fertiliser prices.

“While prices for natural gas and other raw materials we use in fertiliser production have risen, so have fertiliser prices. We continue to produce as much fertiliser as we can to meet global farmer demand,” a Mosaic spokesman said.

Bloomberg