Analysis Fertilizers
Fertilizer prices may rise in the long term.
The prices of fertilizers have remained quite stable this year. They have not yet always returned to pre-war levels, before the Russian invasion of Ukraine. Rabobank foresees higher fertilizer prices in the medium term, as indicated by a recent analysis. In Europe, producers are concerned about the pressure from cheap Russian imports.
As early as 2021, a tight year before the outbreak of the war in Ukraine, fertilizer prices rose significantly. Sometimes by as much as 40%. Higher gas prices, sanctions against Belarus, and the coronavirus were underlying factors. After Russia invaded neighboring Ukraine - with the side effect of a huge increase in gas prices - fertilizer prices exploded. If you paid €28 per 100 kilos for potassium-60 at the beginning of 2021, it was almost €90 at the peak in 2022.
In a report by Rabobank, published on September 9, analysts from the bank expect rising fertilizer prices in the next six months. The model they use indicates that costs for farmers are increasing. In contrast, lower product prices result in negative margins. The prices of phosphate-containing fertilizers such as MAP (monoammonium phosphate) and DAP (diammonium phosphate) fluctuate significantly. Price levels on the world market are considerably higher than last year. Potash, on the other hand, is significantly cheaper, according to the bank.
Demand decreasing
Various factors contribute to the price increase. The growing season in the southern hemisphere has begun, leading to seasonal influences on the market. "Due to increased pressure on farmers' profit margins, partly due to lower product prices, we do not expect an increase in demand for fertilizers," says senior market analyst Bruno Fonseca of Rabobank. "At the same time, we expect nitrogen and phosphate prices to remain above the multi-year price level. As a result, the Rabobank index shows a negative outlook for the next eight months."
The index shows that the price of phosphate has significantly increased in recent months. Nitrogen and potash prices are stable, and urea has slightly decreased in price after peaking in July when deliveries were at risk. Gas prices continue to be a significant factor for fertilizers, especially towards the winter in the northern hemisphere. Geopolitical tensions also strongly influence this market and, indirectly, fertilizers.
Russian fertilizers
China and Morocco have allowed less potassium export this year, while tenders for phosphate from China and India also affect market prices. Europe is currently heavily supplied with fertilizers from Russia. This product is not on the sanctions list. European fertilizer producers are therefore sounding the alarm. The Russians can produce fertilizers for a fraction of the (gas) price, which are often of inferior quality. Yara also mentions the supply of Russian fertilizers in, among others, the Benelux, where several ships have docked at Belgian ports. They emphasize product quality, higher environmental impact, and moral issues.
Already in April, Yara's CEO, Svein Tore Holsether, sharply criticized Europe's dependence on Russian fertilizers. Other producers, such as the German SKW, echo that message. Currently, a third of all urea applied in the EU comes from Russia. In 2023, a record amount was imported, as shown by Eurostat data. Poland imported $120 million worth of Russian urea, compared to $84 million in 2021.
By September, the EU had imported a total of 16.34 million tons of fertilizers. In all months of the year, more was imported compared to a year ago. This mainly concerns nitrogen-containing fertilizers (5.87 million tons). Last year, the total was 9.85 million tons. Especially in July, significantly more nitrogen was imported. 702,000 tons compared to 569,000 tons the previous year. That is almost a quarter more. Russia accounts for a third of the total nitrogen imports.
Production relocated
The import of cheap fertilizers, especially nitrogen-containing ones, is a sore point for European manufacturers. They are increasingly relocating their production outside the EU. There are less strict environmental regulations and cheaper gas supply. The German SKW is working on a factory in the US, and BASF has long been transferring its fertilizer production from Europe to the US and China.
Blocking or making fertilizer imports less attractive is a sensitive issue in Brussels. The extremely high prices of 2021 and 2022 are still fresh in memory. Coupled with lower product prices, it would mean a 'double whammy' for European farmers.
Buy now or wait?
Now, the crucial question: Is it wise to buy fertilizer now for the new season? Gas prices are already on their 'winter rise,' albeit with fluctuations. With colder weather arriving in Northern Europe, the demand for gas increases. At the same time, solar energy decreases, while wind energy can be more easily generated. A sluggish global (fertilizer) market means prices are not declining further and, according to analysts, will increase. By purchasing a portion of the required fertilizer now, you can diversify opportunities and avoid a spring peak.
