Fertiliser prices: WA urea project gains funds, global urea prices rebound after plunge

As global urea prices swing wildly, a major project in WA has gained backing to ramp up domestic fertiliser manufacturing.

Fertiliser prices are tipped to remain well above the five-year average, prompting farming groups to welcome this week’s news of federal government support for a new $3 billion urea manufacturing facility in Western Australia.

A $255 million federal government loan was announced on Thursday, which will go towards infrastructure including a new multi-user wharf and expansion of seawater supply and brine disposal at the new Perdaman Urea Plant near Geraldton.

Grain Producers Australia chair and WA producer Barry Large said the new project, which received conditional environmental approval in September, met an “urgent need” for local manufacturing of fertiliser.

“With fertiliser prices having increased dramatically since planting decisions were made for 2021, and other inputs such as chemicals, GPA has been calling for an increased focus on local manufacturing,” Mr Large said.

National Farmers Federation chief executive Tony Mahar said the plant would help “propel Australia’s self-sufficiency when it comes to critical imports”.

“Many Australians would be shocked to learn the nation imports 90 per cent of its urea, the most commonly used fertiliser in agriculture. Without urea, crop production would fall 30-40 per cent,” Mr Mahar said.

David Littleproud says the new urea plant in WA will bring Australia closer to meeting its own fertiliser needs. Picture: NCA NewsWire / Gary Ramage

Agriculture and Northern Australia Minister David Littleproud said the new urea plant in WA would bring Australia closer to meeting its own fertiliser needs.

“Australia currently imports around 2.4 million tonnes a year of urea for agricultural use, and the Perdaman project will have the capacity to meet 96 per cent of that volume,” Minister Littleproud said.

QUICK RECOVERY AFTER PRICE DIP

The announcement comes as the global price of urea continues its upwards trajectory, after recovering from a sharp drop over the past eight weeks.

Since hitting more than $1250 a tonne on November 25, the price of urea in the Middle East – the global market most tightly aligned with Australian prices – decreased more than 34 per cent, with the Australian dollar-adjusted global price bottoming in late January at $825 a tonne.

Prices are now on the up, pushing above $1100 a tonne in Australia according to retailers.

Elevated prices are expected to remain during the peak demand period of March to June.

Rabobank farm inputs analyst Wes Lefroy said the fall was driven by natural gas price decreases in Europe, and a short-term oversupply in December after an Indian Government tender.

Farmers should expect to pay more for urea this year than last, despite a recent dip in the global price for urea.

“The two most recent Indian tenders in November and December were oversubscribed by more than double,” Mr Lefroy said.

“The market has taken that as an indicator that there is more supply around than the price is indicating. It has left everyone wondering where will all these extra tonnes go?”

India bought 1.19 million tonnes of urea, while suppliers offered 2.75 million tonnes.

CRU Group head of fertilisers Chris Lawson said the oversupply had been snapped up by US buyers, but the low price was now correcting itself.

“We do think the market has a little recovery in it over the coming few weeks,” he said. “But we don’t think (prices) will be as hot as they were in the second half of last year.”

He warned Australian farmers were still “more than likely to pay more this year for their urea than they did last year”, despite the recent fluctuation.

Maryborough fertiliser services business owner Shane Dellavedova said volatility in the fertiliser market over the past 18 months had been “quite remarkable”.

“We are seeing really wild swings,” he said. “For the past six weeks urea has had the spotlight on it.”

The Australian industry was nervously watching the instability in Eastern Europe, he said, which could put more upwards pressure on prices and had made supply less reliable.

“Prices always seem to dominate the spotlight, but really it is as much about making sure the right product is in the right place at the right time,” he said.

Shipping delays made advanced planning crucial to guarantee supply on farm at the right time, he said.

“All customers need to realise this is not a time to sit on the fence and play the market,” he said.

Nutrien Ag Solutions national fertiliser manager Jonathan Morris said global supply chain issues and strong demand, driven by strong ag commodity prices, had influenced prices over the past 18 months.

“Some factors such as high natural gas prices, continued disruptions to the supply chain, and curbing of some exports in key markets has created a significant impact on prices,” he said.

“Many of these factors are outside our control and the market has always been unpredictable. We have seen this recently with nitrogen pricing in the US and also global markets, where we saw a recent correction quickly rebound.”

He said “while the market remains so volatile”, he encouraged growers to have early conversations with farm advisers and agronomists about their requirements before the peak season for nitrogen kicked off in April.

MORE CAPACITY IN PIPELINE FROM LEIGH CREEK

Budding urea manufacturer Leigh Creek Energy will also add to domestic production in the coming three years.

The company has reached agreement with its South Korean partner Daelim for sale of a minimum 500,000 tonnes of fertiliser annually for the first five years of production.

The move will leave 500,000 tonnes available annually for Australia farmers, about a quarter of their needs, once production from the plant at Leigh Creek in South Australia begins in 2025.

Leigh Creek Energy's urea project in South Australia. Picture: Geoff Borg

Leigh Creek Energy is expected to make its final investment decision on the urea project later this year, but managing director Phil Staveley said he was “absolutely confident it would go ahead”.

Daelim, a huge engineering company with the experience to build the urea plant, helped Leigh Creek Energy secure 70 per cent of the $1.5 billion needed to fund the project from a South Korean bank.

Mr Staveley said the fertiliser offtake agreement to Daelim’s trading arm would give Australian investors and banks confidence to invest when Leigh Creek Energy went to source the remaining 30 per cent of funding required for the project’s completion.

He said Daelim would export its 500,000 tonnes of urea and it gave Leigh Creek an outlet for its production in the off-season.

Mr Staveley said Leigh Creek had been approached by a number of fertiliser buyers to enter into offtake agreements.

“But whether we want to do an offtake agreement os sell it ourselves into the market is something that is occupying my mind at the moment,” he said.

He said the company was adamant the other half of its production would be sold into the domestic market and it would be at a favourable price.

“At this stage, we will be selling low-cost urea to the (Australian) buyers,” he said.

“Because our production costs are so low, we’ve got a lot of flexibility in what we can do with the pricing.”

Grain Growers Australia chairman Brett Hosking said it was a “good thing to see more domestic manufacturing”.

“A lot of the disruption we have seen in the supply chain has highlighted the importance of having local and reliable suppliers of all farming inputs,” Mr Hosking said.