‘Scary’: Sustained urea price rise on the way
Urea prices could reach record highs again after Russia announced on Monday gas supply to Europe would remain cut.
Urea prices are set to rise again and this time it could be more sustained, analysts have warned.
On Monday Russia upped the stakes in a game of economic blackmail against Europe, announcing it would not resume gas supplies on the Nord Stream 1 pipeline until the west lifted its sanctions against Moscow.
The move has sent shockwaves through global markets, with Thomas Elder Markets analyst Andrew Whitelaw labelling the potential effect on gas prices “scary”.
Rising energy prices and supply disruption from Russia’s invasion of Ukraine have sent urea prices to record highs over the past 12 months, but price peaks have not been sustained.
Prices are now set for a third surge as energy squeezes in Europe and China combine to limit global supply just as the northern hemisphere heads towards planting winter crops.
Rabobank senior commodities analyst Cheryl Kalisch Gordon warned global urea prices could rise to similar levels seen in November 2021, when prices hit over $1200 a tonne, and this time they may not ease as quickly.
“We have to be ready for the possibility that we will see those high prices again, and that they are sustained for longer,” she said.
“While prices hit a peak and settled down pretty quickly after November last year … we don’t have the flexibility in the global supply chain with gas, and therefore ammonia, and urea, that we had last year because we don’t have Russia trading freely as they were last year.”
As Russia has screwed down the taps on Europe’s gas supply in recent months, European fertiliser producers have been forced to furlough 30 to 50 per cent of their urea production as it became unprofitable.
Last week tensions escalated when Moscow announced it was cutting off Nord Stream 1 – a major gas pipeline to Europe – citing technical issues.
Kremlin spokesman Dmitry Peskov’s Monday announcement was the clearest indication yet that gas supply would be used as a bargaining chip in Russia’s efforts get Europe to lift sanctions imposed in response to its invasion of Ukraine.
“Now we’ve got an even tighter situation than we had last week,” Ms Kalisch Gordon said.
Australia, which imports 90 per cent of its urea, is likely to see prices rise as global markets become tighter, Ms Kalisch Gordon said.
Australia is reliant on urea imports for about 1.7 million tonnes of the 1.9 million tonnes used in the country.
She said urea prices from major suppliers in Qatar, Saudi Arabia, China and Indonesia were likely to rise as Europe looked to import more urea.
Supply from China may also be impacted by drought, which has affected the country’s hydro electricity supply and could lead to rationing of production and manufacturing in some provinces.
Grain Producers Australia chief executive Colin Bettles said the situation highlighted the need for Australia to increase its domestic urea production.
The planned Perdaman urea plant in Western Australia is set to produce 1.4 million tonnes of urea annually, but will not come online until 2025.
How Australian grain growers responded to fertiliser prices rises would depend on whether grain prices remained high enough to balance the extra input costs, he said.
“The big question is whether those (grain) prices will still be at high levels, once growers get the grain in the bin at harvest.
“We need the grain prices stay high,” he said.
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