Europe’s Fertilizer Demand Struggling Amid High Gas Costs, Cheaper Imports

By Deepika Thapliyal, Sylvia Tranganida and Aura Sabadus, ICIS
Thin consumption, rising gas prices, and cheaper Russian imports of urea and ammonia are keeping a lid on European fertilizer production, prompting fears of permanent plant closures.
Unconfirmed data suggest that operating rates for European facilities may soon touch around 80%, a ten percentage point increase on rates reported earlier this summer, with units at Poland’s Grupa Azoty or Romania’s Azomures planning to restart in October.
Nevertheless, the gas-intensive industry which was severely affected by the record energy costs after Russia cut gas supplies to Europe last year continues to face headwinds.
This is reflected in lower aggregated gas demand in the higher-consuming north-west European countries, which continues to be over 20% lower than the five-year average tracked by ICIS.
Gas Prices
Gas prices, although dropping nearly tenfold since the record highs seen at the end of August 2022, remain above the long-term average and have been lifted by extensive unplanned outages at upstream facilities in Norway, which restricted daily supplies by almost a third in the latter part of summer.
Sluggish industrial demand and ample stocks are likely to pressure gas prices although much of this will depend on the weather this winter.
Bullish and volatile gas prices combined with maintenance at fertilizer production facilities globally have been squeezing margins.
In some cases, producers have been able to reflect the higher feedstock costs by lifting sale prices.
For example, the October ammonia price agreed between Norway’s Yara and US producer Mosaic was set at USD575/tonne CFR (cost & freight), USD185/tonne higher than the September price at USD390/tonne.
An ammonia trader told ICIS this price was above natural gas prices in Europe, effectively allowing the seller to eke out a margin.
Ammonia plants do not pay spot price, as they have formulas reflecting averages, which means that European industrials must still have their gas cost in the 30-40 per MWh.
With no signs of further declines in gas prices, the longer-term impact on profitability in the fertilizer sector is another concern.
There have been no permanent plant closures in Europe since German-based BASF’s announcement in February plans to shut its caprolactam and ammonia plant at Ludwigshafen by the end of 2026 due to high production costs, but the threat is real for several producers.
Russian Imports
Reviving production is also hampered by the influx of cheap Russian products, which may cost seven times less to produce than in Europe.
Although the EU had sanctioned some individuals associated with the Russian fertilizer sector following Russia’s all-out invasion of Ukraine, products such as urea are accepted, and imports continue to be ample. Products from major producers are no longer sanctioned in France and also moving to other countries.
On the demand side, the picture is equally challenging.
Poor Demand
Demand for most nitrogen products, for example, is still lacking despite the unexpected tightening of exports from China supporting global urea and phosphate prices.
Speaking to ICIS, Adam Joslin, customer success manager at ICIS’ sister organization ProAgrica, said the slump in consumption may be related to macroeconomic factors such as a weak Sterling in the UK, seasonality as well as inflationary pressures and higher costs, which are making farmers more cautious in their applications of fertilizer products.
“I think the state of the economy has the potential to affect demand – rising inflation globally, together with rising interest rates, is perhaps leading the market to expect recessional behavior and demand not being as strong,” he concluded.
Fueling Growth
Nitrogen is important in fueling growth and providing high potato yields. It is largely needed during leaf formation and then for tuber growth and yield, when it ensures optimal carbohydrate production in the leaves.
Nitrogen fed at an early stage of crop development will help build the overall size of the canopy. At later stages of growth, nitrogen use helps maintain the greenness of the canopy and maximize yield.
In temperate climates, an excess supply of nitrogen at later stages of growth can cause excessive vine growth, preventing the crop from reaching maturity. It may also reduce starch content, reducing processing potato crop quality.
About 50% of total N is taken up before tuber initiation; therefore, a standard soil fertility program might include 50% of the total N pre-plant or at planting, with the remainder applied either as a top-dress, side-dress, or by fertigation.