Food Costs Risk Surging as Europe Cuts Fertilizer Output
European Fertilizer Output Cuts Pose Risks for Food Prices
(Bloomberg) -- European fertilizer makers, including Yara International ASA and Borealis AG, are cutting output because of surging natural gas prices, adding to the growing risks for global food inflation.
Russia’s invasion of Ukraine has roiled commodities markets and propelled natural gas -- the feedstock of nitrogen fertilizers -- to record levels. That’s forcing producers to curb ammonia output, pushing up farm input costs and adding to the risks of a worldwide food shock.
Yara is temporarily curtailing production at Ferrara in Italy and Le Havre in France, the Oslo-based company said on Wednesday. Output of ammonia and urea at its European facilities will be just 45% of capacity by the end of this week. The two plants produce 1 million tons of ammonia and 900,000 tons a year of urea between them.
Natural gas is used as a feedstock for nitrogen fertilizers, usually accounting for around 80% of a manufacturer’s costs. European gas futures are now about 10 times higher than a year ago. Global food prices jumped to a record last month, just as war started in the world’s breadbasket.
Yara shares closed 1.6% higher in Oslo trading, after earlier dropping as much as 2.7%. The stock has declined about 10% this year.
Borealis, another European fertilizer producer, is reducing its ammonia production capacity because of surging gas prices. It’s also considering stopping output for “economical reasons.”
Hungarian producer Nitrogenmuvek Zrt is temporarily halting output of ammonia. “In a few days our fertilizer plants will also shut down, as we have limited ammonia storage capacity,” Zoltan Bige, chief strategy officer, said in an email.
Other producers of the crop nutrient are considering doing the same, according to industry group Fertilizers Europe.
“Companies cannot continue to take the risk of producing fertilizers with present gas prices and putting the product into storage for later sale as that is too risky,” said Fertilizers Europe spokesman Lukas Pasterski.
Virtually every major crop in the world depends on inputs like potash and nitrogen, and without a steady stream, farmers will have a harder time growing everything from coffee to rice and soybeans. The fertilizer industry in Poland, which neighbors Ukraine, will be heavily affected by the war and volatile gas prices, the Chamber of Chemical Industry said Friday in an emailed response to questions. That’s because Russia is a key supplier of fertilizers and natural gas.
Soaring gas prices are hitting all energy-intensive industries, with paper makers Norske Skog ASA and Pro-Gest SpA halting mills in Austria and Italy this week. Pro-Gest said that the selling price of a ton of paper was lower than the cost of the energy required to make it.
In Northern Italy, several steel mills have also announced stops to production, with the intention of resuming activities once prices go down. About 1,500 staff could be placed on temporary furloughs, according to the Corriere del Veneto newspaper.
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