By Louise Rasmussen and Terje Solsvik
(Reuters) – Norway’s Yara, one of the world’s largest fertiliser makers, is slashing ammonia production due to soaring gas prices, raising questions about Europe’s ability to produce enough fertiliser for its crops.
Ammonia plays a key role in the manufacturing of fertiliser. Without it, crop yields will deteriorate because nutrients removed from soil during harvesting are not replenished.
Yara has repeatedly warned the world faces an extreme food supply shock due to a combination of high gas prices, the war in major grains producer Ukraine and sanctions on fertiliser producer Russia.
Fertilisers require large amounts of energy to be produced. Manufacturers such as Yara use gas for the process. Gas prices have surged almost 40% in August and nearly 300% this year.
“That is going to lead to a bit lesser volume supplied on the soil. And basically, in short, the long term implication is higher food prices,” said Berenberg analyst Adrien Tamagno.
Yara began reducing ammonia production earlier in the year. It will only be using around 35% of its European ammonia capacity after its latest cuts, the company said on Thursday.
“We’ve basically never seen prices high enough to defend production at these cost levels,” said Kepler Cheuvreux analyst Magnus Melvær Rasmussen. “It’s not looking good and that’s a problem for farmers, for food production and for food security.”
Farmers will still be able to import fertilizer from outside Europe but it will be more expensive, analysts say. Alternatively, European fertilizer could be produced using ammonia exported from elsewhere.
Yara will use imported ammonia, where feasible, to meet customer demand, it said on Thursday.
“It’s hard to see that you would be able to replace everything that’s potentially missing,” said Rasmussen.
Yara is one of several European chemical companies that have curtailed ammonia output. Germany’s SKW Piesteritz and BASF cut some production earlier in the year.
The trend accelerated this week.
Grupa Azoty, Poland’s biggest chemicals firm, will limit fertiliser production, it said Wednesday, citing an “extraordinary and unprecedented” rise in gas prices.
CF Fertilisers UK, a subsidiary of CF Industries Holdings Inc, is temporarily halting ammonia production at its Billingham Complex due to high natural gas and carbon prices, it said on Wednesday.
Shares in Yara were up 2.6% at 1146 GMT, outperforming Oslo’s benchmark index..
(Additional reporting by Gwladys Fouche in Oslo; Writing by Matt Scuffham; Editing by Edmund Blair and Mark Potter)
