Natural gas prices in Europe have risen by around 40pc over the past week and, once again, pose a challenge to regional nitrogen production.
Spot prices at the TTF hub are up to an eight-month high of €53/MWh today, crushing margins for both agricultural urea and nitrates producers.
Argus estimates that even the most efficient granular urea plants face production costs around €425/t ex-works at a gas cost of €53/MWh, while older units would cost closer to €470/t. One week ago these costs were €100/t less — and production margins were positive. Spot market prices for granular urea in Europe have generally held at around €420-425/t fca seaports in bulk across most northern, Mediterranean and east European markets over the past two weeks.
Prilled urea avoids incurring the additional energy costs of granulation and we estimate that it would cost roughly €360-400/t to produce, while market prices in Benelux were this week at around €415/t fca.
CAN and AN also look only marginally profitable at current market values. CAN prices have fallen by around 10pc over the past two months, with the key German reference now around €310-315/t cif inland — while production costs are estimated at €290-315/t ex-works. Ammonium nitrate producers face a similarly challenging position with production costs estimated at €330-360/t for granulated material.
Previous losses in affordability in 2021 and 2022 prompted sharp increases in nitrogen prices as many factories shut down for extended periods, leading to a massive wave of urea and ammonium sulphate imports to replace the lost production.
But the supply situation is not as dire — the previous periods saw producers facing potential losses of hundreds of euros per tonne of fertilizer — and indeed factories including Romania's Azomures and Croatia's Petrokemija have recently restarted some production. Buyers too have been reluctant to warehouse much price risk ahead of farm demand, which remains seasonally low in Europe, because of losses on similar positions this spring.
Natural gas prices have risen mostly in response to a sharp swing in weather forecasts, alongside heightened energy security concerns and uncertainty over the effect of a new Bulgarian tax on Russian gas transit.
