Fertilizer prices rise again as Russia cuts natural gas supplies

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The value of fertilizers remains highly volatile as markets process the ongoing disruptions of Russian natural gas entering Europe.

According to the Green Markets North American Fertilizer Price Index, prices of the product in North America rose 11% week-over-week as of Friday, September 2. It ended the week at $982.63.

Fertilizer prices remain below the $1,270.40 high reached in late March. But they are back after Russia's decision to cut off natural gas supplies to Europe.

What will happen to Russia?

Natural gas prices rose again on Friday after Gazprom cut supplies from the main Nord Stream 1 pipeline to Europe. The Russian state-owned company said the interruption was caused by a leak that needed to be repaired.

And prices rose further on Monday, as Russia claimed the pipeline would not be restarted until sanctions are lifted. Kremlin spokesman Dmitry Peskov has said sanctions against Russia following Ukraine's invasion this year have caused a problem with the pumping of Nord Stream 1.

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On Monday, natural gas for delivery next month was recently trading at 450 pence per therm. This was an increase of about 10% on the day.

Nitrogen fertilizers are by far the most commonly used. And a key component of these products is ammonia, a compound that requires huge amounts of natural gas to produce.

Because of these dynamics and the rise in gas prices in 2022, Jacob Hansen, director general of trade organization Fertilizers Europe, told Euronews in May that natural gas is good for " 90% of variable costs in fertilizer production."

Other price factors

Major fertilizer producers in Europe continue to close their operations in response to rising energy costs.

For example, the Polish Grupa Azoty and PKN Orlen announced plans at the end of last month to stop producing

nitrogen fertilizers.

In the UK, CF Fertilizers UK - which in late August said it was also halting ammonia production - ceased fertilizer

production in September 2021.

However, rising natural gas prices are not the only reason why fertilizer prices are rising. Supply disruptions from Russia and Eastern Europe after the outbreak of the conflict in Ukraine also have an effect. Restrictions on Chinese exports, meanwhile, are exacerbating the supply shortage.

Rising food prices also help increase fertilizer value by encouraging farmers to plant more crops, increasing demand for the food substance.

Prices tipped to keep climbing

Perhaps unsurprisingly in the current climate, industry experts predict that fertilizer prices will remain elevated for longer.

In the UK, for example, fertilizer prices are predicted to rise by around £2 billion over the next four years. So says the Energy and Climate Change Intelligence Unit (ECIU), which shared their research with the Press Association.

The body says fertilizer costs have already risen by £760 million in 2021 and 2022 as a result of increased natural gas prices. And it thinks they will rise by another £1.1bn if gas values remain high.

At the same time, long-term demand incentives remain that could keep prices up.

In its latest annual economic and commodity outlook BHP Billiton reiterated the impact of " population growth, urbanization, the infrastructure of decarbonization and rising living standards " about stimulating fertilizer consumption.