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Polish Grupa Azoty, a large fertilizer producer, has stopped the production of some key fertilizers, including nitrogen fertilizers and caprolactam, because of soaring energy costs, becoming the latest casualty of the European gas crunch.
Bloomberg reported that the company would also curb ammonia production because energy costs have compromised the profitability of the business.
Natural gas is a crucial feedstock for synthetic fertilizer production, and soaring prices have had a severe impact on the industry, with several fertilizer producers shutting down in Europe.
Fertilizer usage is also declining because of prices, which has grim implications for global food security. According to the International Fertilizer Association, the use of fertilizers could shrink by as much as 7 percent next season, which would be the biggest drop since 2008, Bloomberg reported earlier this month.
“If European farmers import more products from other exporters, then for the more fragile agricultural markets in sub-Saharan Africa, South Asia and parts of Latin America, this will make the global market tight,” a senior IFA official said.
“I don’t see how anyone is continuing to produce in Europe, outside of those who have hedged” their energy costs, Chris Lawson, head of fertilizers at intelligence group CRU told Bloomberg. “We are expecting ammonia prices to continue to grow.”
Further aggravating the problem is the fact that Europe imports a lot of its fertilizers from Russia. Because of the standoff between Brussels and Moscow amid the war in Ukraine, the former is looking for alternatives, including manure.
Meanwhile, imports of fertilizers from other places are seen on the rise, shrinking the access of poorer nations to vital agricultural commodities.
The fertilizer industry is not the only one suffering from excessive gas prices. Per an analysis by Reuters, nearly 50 percent of aluminum and zinc smelters in Europe have shut down, with the latest casualty Norsk Hydro-owned Slovalco in Slovakia.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.