Ukraine crisis may impact fertilizer prices
Russia’s military intervention in Ukraine could impact global nitrogen fertilizer markets if flows of natural gas are disrupted, experts say.
At this point, the hostilities don’t seem to have seriously interfered with fertilizer exports from Ukraine, a notable global supplier of nitrogen, experts say.
However, roughly 40-50 percent of Ukrainian urea — a common nitrogen source — is manufactured with natural gas from Russia, said David Asbridge, president of the NPK Fertilizer Advisory Service.
Russia could seek to exert pressure on Ukraine by raising prices, slowing flows or shutting off the natural gas supply altogether, he said.
“When we’re dealing with governments like Russia, you never know,” Asbridge said.
If Russia curtailed natural gas flows, Ukraine could not divert domestic supplies for urea production, he said. Domestic supplies are needed for heating, so Ukraine wouldn’t make up the shortfall in natural gas needed for fertilizer, he said.
Halting shipments from Ukraine’s Port of Yuzhny on the Black Sea is another threat, said Clive Yearsley, chairman of the Profercy fertilizer market consulting firm.
Shipments from that port represent roughly 5 percent of world export supplies of urea and up to 20 percent of world export supplies of ammonia fertilizer, he said.
Fortunately, the Ukrainian crisis has come at a time when nitrogen markets in the U.S. are less likely to be impacted.
The U.S. fertilizer pipeline is currently geared up to fill spring nitrogen demand, Yearsley said. The situation would be more worrisome if it occurred in late 2013, when the market was not yet ready for spring.
The hostilities have also come at a time of rising global nitrogen manufacturing, said Asbridge.
Production problems in Egypt, Trinidad and elsewhere caused nitrogen supplies to tighten over the winter, causing prices to jump, he said.
The price per short ton of urea rose from $285 last autumn to about $425 now along the Gulf Coast, a major trading area, Asbridge said.
With prices in the U.S. now relatively high, the country attracted imports that were expected to soon drive down prices, he said.
If the Ukrainian crisis leads to supply difficulties, though, that may prevent prices from dipping — they could level off or rise slightly, Asbridge said.
“We don’t expect any big price spikes out of it,” he said.
Chinese nitrogen is also likely to prevent shortages.
Lower export tariffs are boosting Chinese urea shipments, said Stanley Muhr, fertilizer broker with Bridgewell Resources.
China usually imposes tariffs of 70-100 percent on outgoing urea between October and July to build up domestic inventories, he said.
Due to adequate supplies, the country is currently imposing tariffs of only 20 percent, said Muhr.
“Usually there wouldn’t be product coming out of China at this time of year,” he said.