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‘Era of cheap ammonia is in the rear view’ – Fertiliser prices are soaring on natural gas crunch in Europe

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Loading of mineral fertilisers into a ship.

Loading of mineral fertilisers into a ship.

Loading of mineral fertilisers into a ship.

Pricing are heating up again in the fertiliser market as an energy crunch in Europe makes manufacturing nitrogen more pricey.

The price of gas, the main input for nitrogen-rich ammonia fertilizer, has been surging in Europe after Russia slashed supplies to its biggest market following the invasion of Ukraine and imposition of Western sanctions. That's making it more expensive to produce fertilizer.

The era of cheap ammonia is "in the rear view," Alexis Maxwell, an analyst at Bloomberg's Green Markets, said in a note.

Green Markets' Tampa ammonia spot-price index rose nearly 15pc, the most since March. New Orleans urea, a common nitrogen fertilizer, saw its weekly price rise over 7pc Friday to the highest since May.

"This fertiliser bull run certainly has legs heading into the fourth quarter," Maxwell said in an email.

It comes as Germany's BASF, the world's largest chemical company, is said to be considering further cuts to ammonia production due to soaring natural gas prices, two sources familiar with the matter said, with potential ramifications from farming to fizzy drinks.

Germany's biggest ammonia maker SKW Piesteritz and number four Ineos also said they could not rule out production cuts as the country grapples with disruption to Russian gas supplies.

Ammonia plays a key role in the manufacturing of fertiliser, engineering plastics and diesel exhaust fluid. Its production also yields high-purity carbon dioxide (CO2) as a byproduct, which is needed by the meat and fizzy drinks industries.

Unlike many European countries, Germany has no liquefied natural gas (LNG) port terminals to replace Russian pipeline gas. That means companies are under political and commercial pressure to reduce gas intensive activities if gas deliveries are cut further.

BASF cut ammonia output at its headquarters in Ludwigshafen and at its large chemical complex in Antwerp, Belgium, in September. Its output rate is still reduced and could be cut further, although the company will closely examine the knock-on effects, the two sources said.

BASF told Reuters it would continue to fulfil its internal ammonia needs and external customer demand, declining to disclose plant utilisation rates.

Fertiliser giant Yara, which runs Germany's third-largest ammonia production site in the northern town of Brunsbuettel, said its output across Europe was currently 27% below capacity due to the surge in gas prices.

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