Russian fertilizer producers have a chance to increase sales to Europe

Gas prices on the TTF hub in the Netherlands force nitrogen fertilizer producers to suspend or reduce their production capacities in Europe. The International Fertilizer Association (IFA) doesn’t expect the prices to drop, and therefore Fertilizer Daily has considered the opening opportunities for Russian exports and the future of the European market.

In May 2020, due to the COVID-19 pandemic, TTF gas prices collapsed to the lowest level of $34 per 1,000 cubic meters. But now gas prices are breaking the records. At the end of July 2021, due to low stocks in Europe, an increase in electricity consumption, and a decrease in the water level in reservoirs of hydroelectric power plants, TTF gas prices jumped to $500. After a fire at one of Gazprom’s plants, which caused a decrease in the pumping of Russian gas to Europe, prices set a record of $600. On September 9, they exceeded $700, and on September 14, $800 per 1,000 cubic meters. Last week, the cost of gas exceeded $1.4 thousand.

In such a situation, it’s unprofitable to produce nitrogen fertilizers in the European Union. When the price for natural gas exceeds $20 per million of British thermal units (about $700 per 1,000 cubic meters), the expenditures on just purchasing it for ammonia production approach $800 per ton. Therefore, many companies have suspended or reduced the production of nitrogen fertilizers. Among them are Yara International, CF Industries, Fertiberia Group, OCI, Achema, and Odessa Port Plant.

IFA experts believe that future difficulties can’t be avoided. Even if the output is restored by January 2022, the shortage of nitrogen fertilizers and disruptions in their supply will still be the problems. If prices do not fall, farmers couldn’t afford them. Both the first and second options lead to the insufficient application of nitrogen fertilizers during the spring season in Europe.

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Sales of nitrogen fertilizers from Russia to the European Union could smooth the situation since the prices for natural gas for their production in Russia are significantly lower. Moreover, the European market is a key one for Russian fertilizer producers, and they can increase sales of nitrogen fertilizers in the autumn-winter period by 5-15% compared to the same period in 2020.

However, to take advantage of the opening opportunities, Russian exporters have to deal with existing difficulties. In 2019, the European Union introduced anti-dumping duties on the import of nitrogen fertilizers from Russia, the United States, Trinidad and Tobago. And today, amid an extremely difficult economic situation, Fertilizers Europe calls on the European Commission to “remain unwavering and continue to ensure that the established conditions of fair competition for natural gas and fertilizers in the European Union market are respected.”

Finally, as part of the Green Deal, the European Union plans to introduce a border carbon tax from 2023, which could amount to 65% of the proceeds of Russian nitrogen fertilizer producers from sales to Europe. Nevertheless, sales to the European Union could grow significantly next year.