Fertilizer prices have started a cautious decline. Growers are now asking themselves: will prices continue to fall and should I wait to order, or is the dip in prices only short-lived and it's better to strike now? There is no answer to that question. But with the quarterly figures published in recent weeks, the fertilizer producers are giving a glimpse behind the scenes of how they expect the market to develop in the coming period.
The Russian invasion of Ukraine has not only pushed up grain prices, but has also caused major problems in Europe's energy supply, with gas jumping out. Natural gas is by far the most important raw material for the production of nitrogen fertilizers. Due to the extremely expensive gas, manufacturers have shut down European factories. This has also been widely reported outside the agricultural media. Due to the relatively high grain prices, the demand for fertilizer has remained stable. The resulting shortage drove the price of nitrogen fertilizers up considerably. This has not done the producers any harm, according to the quarterly figures. Turnover has grown significantly at most manufacturers and profit margins have risen even faster.
Fortunately, there were no actual shortages that meant that no fertilizer could be supplied - which was feared at the beginning of this year. The listed companies do not make concrete statements about the expected production and sales volumes for next season. However, trends are outlined. Most companies assume that the global ammonia market will remain tight in the coming years. The high energy prices in Asia and Europe are likely to continue for another two or three years, causing the production of that substance to shift to areas of the world where gas is cheaper. This does not mean that no more fertilizer is produced, but that European producers buy the ammonia and process it into higher-quality fertilizer. OCI is one of the manufacturers adopting this strategy. "OCI helps reduce Europe's reliance on natural gas by importing ammonia to maximize downstream production," the company wrote in its presentation, explaining its quarterly results.
Large variation
Yara's commentary on the third quarter figures is also interesting. The company has significantly scaled back ammonia production in the EU. There has been quite a bit of publicity about it. This has only a limited effect on production fertilizers, according to the figures for the third quarter. "The production of finished fertilizer is not limited by the availability of ammonia," Yara writes. CF, another fertilizer manufacturer active in the European market, is one of the few to venture a prediction of the cost price range for ammonia in 2023. The range runs from $370 to $1.140. That's just a very broad estimate. In comparison, in 2022, the cost of ammonia moved between $490 to $955 according to CF. In fact, the company is saying: we don't know which way the fertilizer market is going. The price can rise slightly, but also fall sharply. Whether that price will actually fall depends to a large extent on how the European gas price continues to develop. With a mild winter in Europe and Asia and a sufficient supply of LNG, the gas price could fall and the production of ammonia in Europe could be increased again. That gives air to the fertilizer market.
Another striking point in the quarterly reports is how the fertilizer manufacturers view the green goals and climate plans. One manufacturer states that the demand for ammonia is growing and that additional gray production capacity must be built in order to bring the market back into balance. To put it exaggeratedly: this is not happening enough now because the industry is seen as polluting and countries prefer not to have new factories within the borders. Other manufacturers state that last year it became clear how dependent the fertilizer industry is on gas. They believe that work should be done on the production of green ammonia.