At least six European nitrogen producers announced initial
or additional ammonia and/or nitrogen production cuts from Aug. 22 onward due
to soaring natural gas and energy prices on the continent. They included Yara
International ASA, CF Fertilisers UK, Borealis, Lithuania’s Achema, Hungary’s Nitrogenmuvek,
and Poland’s Anwil SA and Grupo Azoty. This was on top of earlier announcements
by Yara, OCI NV, BASF, and Germany’s SKW Piesteritz.
Yara said on Aug. 25 as
a result of record-high gas prices in Europe, it is implementing further
curtailments that will take its total European ammonia capacity utilization to
around 35%. With this, Yara will have curtailed an annual capacity equivalent
of 3.1 million mt of ammonia and 4.0 million mt of finished products (1.8
million mt urea, 1.9 million mt nitrates, and 0.3 million mt NPK) across its
production system in Europe.
Yara said where possible
it will use its global sourcing and production system to optimize operations
and meet customer demand, including continued nitrate production using imported
ammonia when feasible. Yara said it will continue to monitor the situation and
adapt to market conditions going forward.
On
Aug. 24, CF Fertilisers UK, a subsidiary of CF Industries Holdings Inc.,
announced its intention to temporarily halt ammonia production at the
Billingham Complex due to market conditions. CF UK intends to use the site’s
capability to import ammonia to enable it to continue to run its ammonium
nitrate and nitric acid upgrade plants. CF expects to fulfill all ammonia and
nitric acid contracts and all orders of AN contracted for delivery in the
coming months.
At
current natural gas and carbon prices, CF said ammonia production is
uneconomical, with marginal costs above £2,000 per mt and global ammonia prices
at about half that level. It said the current cost of natural gas at the NBP (National
Balancing Point) is more than twice as high as it was one year ago, with the
NBP forward strip suggesting that this price will continue to rise in the
months ahead.
CF
said it has not yet determined the exact date when it will begin the temporary
shutdown of the ammonia plant. At this time, CF does not anticipate any impact
on employees regarding this announcement given the substantial level of
activity that will continue to occur at Billingham.
CF has notified customers
who purchase carbon dioxide (CO2) on a contract basis from the Billingham facility
about the impending temporary halt of ammonia production. Once the ammonia
plant is safely shut down, CO2 production, which is a byproduct of the ammonia
production process, will stop until the plant is restarted.
CF’s Billingham plant is a main source of
the UK’s CO2, which is vital for many of the UK’s
food processing and drink sectors, as well as the country’s hospitals and
nuclear power industry, among others.
Last September, when CF’s Billingham
and Ince plants went down due to high gas prices, the UK government agreed to
an exceptional three-week arrangement that provided “limited financial support”
to CF and allowed the Billingham plant to restart (GM Sept. 24, 2021) while the CO2 industry moved toward a pricing
deal.
Since last year’s outage, CF has permanently closed the
smaller Ince plant. Between the two, they had accounted for as much as 60% of
the nation’s CO2 production. The Billingham plant has a capacity of 750 mt of CO2
per day for commercial use. Currently, 42% of the UK’s CO2 supply comes from
CF.
The UK government is examining options for the CO2 market to
improve resiliency over the longer term, a spokesperson said. The country
already has seen an improvement, with additional imports, further production
from domestic sources, and larger stockpiles. The government is engaging with
businesses across the food industry on potential impacts, the spokesperson
added.
UK CO2 users are heavily reliant on imports to make up the
shortfall since CF’s first plant closed, and European food and drink companies
have also been scrambling to secure supplies as ammonia producers elsewhere in
the region cut output, said British Meat Processors Association Chief Executive
Officer Nick Allen.
“Whilst we are in a much better position now than we were a
year ago, if CF Industries follows through on its threat to close Billingham,
the British meat industry will have serious concerns,” he said. “Without
sufficient CO2 supplies the UK will potentially face an animal welfare issue
with a mounting number of pigs and poultry unable to be sent for processing.”
Two major Polish nitrogen
producers announced outages early in the week. Poland’s largest chemical maker,
Grupa Azoty, and its subsidiary, Pulawy, halted output at units producing
nitrogen fertilizer, caprolactam, and polyamide 6, while trimming the output of ammonia.
“The current situation on the natural gas market that determines profitability of production is exceptional,” said Grupa Azoty. It did not say how long the measures would last. The state-controlled holding company tried to avoid curtailing fertilizer production, even after European gas prices rose more than four-fold this year amid reduced supplies from Russia.
“Azoty’s announcement is very negative, but expected, as
production of fertilizers at such high gas prices simply does not pay off,” Krzysztof
Koziel, an analyst at Bank Pekao SA, said in emailed comments to Bloomberg. He said investors would be on
the alert for any aid provided by the government, as well as signs of a rebound
in grain prices that could help boost the fertilizer market.
Grupa Azoty describes itself as the second-largest producer of mineral fertilizers in the European Union. The company is among the largest buyers of natural gas in Poland, consuming more than 20 gigawatt hours of the fuel every year.
Polish Agriculture Minister Henryk Kowalczyk told state
radio that Azoty has enough inventory to provide fertilizers for the autumn
sowing season. He said he hoped the gas market would stabilize, because Poland
“needs to think about spring sowing” as well.
Anwil SA, a petrochemical unit of Poland’s biggest refiner, PKN
Orlen SA, halted fertilizer output on Aug. 22. Anwil will conduct maintenance
and investment works during the shutdown.
Hungary’s sole fertilizer maker, Nitrogenmuvek Zrt, halted
ammonia production in early August and is seeking to secure new capital ahead
of the next planting season, Chief Strategy Officer Zoltan Bige told Bloomberg in an interview on Aug. 25. He
expects gas prices to moderate to around €150-€160 per MWh in a positive
scenario for this winter, once storage capacities have reached targeted levels
and markets calm. However, in a negative, he sees gas price at or above €300/MWh.
Bige expects the prices of Nitrogenmuvek’s nitrate-based fertilizer
product to rise in line with gas costs to around €1,000/mt at the start of the
season, and in a worst-case scenario to €1,500/mt.
Nitrogenmuvek is seeking to raise between €50- €100 million through
corporate bonds and bank loans. “The importance of the industry and its
resilience to the crisis has attracted the attention of investors, including
banks,” he said.
Lithuanian
nitrogen producer Achema, based in Jonava, reported that it will halt
production at its plant as of Sept. 1 due to high natural gas prices, according
to an Aug. 24 report by Lithuanian broadcaster LRT.
Vienna-based Borealis AG said it has been reducing and
stopping fertilizer production at different European sites for economic
reasons.
“Our approach for reduced production and plant stops for
economic reasons will not change toward and during wintertime,” the company
said by email, when asked whether it had idled a site in France due to the high
price of natural gas.
Separately, a full shutdown for maintenance is planned for
the company’s Grandpuits site in France for September and October, the company
said. That plant has been idled for several months due to high gas prices and
is scheduled to restart after the work has been completed, according to Bloomberg, citing an individual familiar
with that matter.
