Easing Natural Gas Prices Poses Relief in the European Ammonia and Urea Market

European fertilizer costs have plummeted as natural gas prices have declined dramatically in recent weeks, owing to milder temperatures throughout the continent and fuller-than-average natural gas storage facilities. In the German market, the cost of Anhydrous Ammonia and Urea free-on-board has decreased by 5% from one month to the next.

The recent sharp drop in natural gas prices has prompted European Ammonia manufacturers to resume fertilizer production in the continent. One of the biggest fertilizer businesses in the world, Yara International of Norway, reported that it was currently producing 65% of its European Ammonia capacity after cutting production to just over a third of its total capacity for most of the second half of this year. European fertilizer production is currently running at roughly 63% of its maximum capacity, up from 37% at the beginning of October. Many producers reduced Ammonia and Urea output or stopped production as Ammonia prices rose quickly earlier this year to avoid sharp profit margin declines or losses.

On November 15th, 2022, European benchmark natural gas prices are expected to be around USD 131/ MMBtu. Many producers just ceased producing their products because they could not shift the cost onto the consumer. Farmers choose to accept the higher prices demanded instead of paying them.

Even though some Ammonia fertilizer production is starting to resume, the fact that natural gas prices are still significantly higher than they were before the Ukraine conflict threatens to limit it for the foreseeable future. Fertilizer costs have returned to the levels they were at this time last year, although they are still significantly higher than average.

As per ChemAnalyst, European fertilizer prices will be under pressure as fears of a coming recession may decrease the demand in the upcoming months. The Ammonia and Urea prices might get firmer in the upcoming months. However, the outlook for Q1 2023 is positive for the European fertilizer market. Furthermore, Austrian company Borealis AG, which also produces fertilizers including Ammonia and Urea, stated that despite falling natural gas prices, it has not been able to resume production because of weak demand in Europe.