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Soaring gas Prices Disrupt Hungarian Fertilizer Manufacturing

Manufacturing

Minister of Agriculture István Nagy speaks at a press conference on March 11.

Photo by János Mészáros / MTI

Like some other fertilizer manufacturers in Europe, Hungary’s Nitrogénművek has temporarily halted ammonia production and may soon stop fertilizer production on soaring gas prices due to the Russo-Ukrainian war. While Nitrogénművek claims this will cause problems in the local agricultural sector, possibly leading to price increases in food production, the Ministry of Agricultural insists that fertilizer supplies for the country have been secured.

Nitrogénművek Zrt., a Hungarian nitrogen-based fertilizer producer and agricultural input-material distributor, announced on March 9 that it would be temporarily halting its ammonia production, which is the prerequisite of fertilizer manufacturing.

The 90-year-old business, based in Pétfürdő (98 km southwest of Budapest by road), justified its decision with the enormous daily price swings of natural gas used in the fertilizer manufacturing process. As this issue of the Budapest Business Journal was going to press, it seems highly likely that Nitrogénművek will have run out of its ammonia stock and halted the production of its fertilizers products.

“The war in Ukraine created an extraordinary situation in the European and Hungarian economies. Natural gas prices have more than doubled and the risk of energy supply security has also increased,” Nitrogénművek Zrt. said in a press statement sent to the BBJ.

“Government decisions that unpredictably affect the market fundamentals of agriculture (i.e., grain export restrictions) further increase our market risks, which forced us to halt our ammonia production temporarily,” the company statement added.

Nitrogénművek has said it is constantly monitoring the situation and “will do its utmost to restart production and reduce the region’s dependence on fertilizer imports.” Nevertheless, the firm said the highly energy-intensive ammonia production stoppage was necessary given the current market environment.

László Bige, one of the owners of Nitrogénművek

Volatile Price Swings

The prices of natural gas have been so volatile, swinging between EUR 100 and EUR 250 in a single day, that such raw material price changes cannot be incorporated into the selling price of the fertilizer, László Bige, one of the owners of Nitrogénművek, said in an interview on  Hungarian commercial television channel ATV.

“End-users cannot adjust so fast [to price changes], and it is not even possible to do so,” Bige said in the interview. “If we consider that we manufacture a product that we would not be able to sell, we would rather halt production,” Bige added.

Bloomberg reports that natural gas, a feedstock for nitrogen fertilizers, usually accounts for almost 80% of a manufacturer’s cost, adding that European gas futures are now about 10 times higher than a year ago.

Nitrogénművek is not alone in its production difficulties. Norway’s Yara, which is one of the world’s largest fertilizer producers, has also curtailed its ammonia and urea (a fertilizer and feed supplement) output in Italy and France, according to Reuters. Yara also cited the surging natural gas prices.

“Including optimization and maintenance at other production facilities, Yara’s European ammonia and urea production is expected to be operating at approximately 45% of capacity by the end of this week,” Reuters quoted Yara as saying. Yara is the world’s second-largest producer of ammonia, with a capacity of 4.9 million tonnes per year in Europe, which in turn is used in the manufacture of urea fertilizers.

Borealis, another European fertilizer producer, also announced that it was reducing its ammonia production capacity, similarly citing the high natural gas prices. In an email sent to Bloomberg, Borealis’ corporate communications manager Virginia Wieser said it was also considering stopping production for “economical reasons.”

Nitrogénművek’s Bige told Hungarian ATV that the company had not thought it would sell so much fertilizer in a week that it would nearly empty all its ammonia stocks. The firm, which supplies 50-60% of the Hungarian market with fertilizer, according to Bige, could stop fertilizer production too, as it is running out of ammonia. Bige also warned that the Hungarian market is missing almost 30% of the fertilizer stock needed for wrapping up this year’s harvest.

Harvest Covered

After the interview with Nitrogénművek’s Bige aired, the Hungarian Ministry of Agriculture issued a statement in which it insisted that the Hungarian agricultural sector has the fertilizer levels necessary for the spring harvest. Minister István Nagy said he had discussed the supply situation with Hungarian fertilizer distributors and importers, the Hungarian Chamber of Agriculture and the Association of Hungarian Economic Circles and Cooperatives.

The minister emphasized that the partial shutdown of European fertilizer production capacities is not a direct problem in Hungary at present. Nagy also pointed out that farmers have already carried out the first cereal top-dressing (spreading a thin layer of soil mix over a turf area and working it into the turf to stimulate thatch decomposition) this year and that there is a sufficient supply of fertilizer in the country for the next work phases.

Nagy underscored that, in the interests of Hungarian farmers, all possible means must be used for the safe supply of domestic fertilizers.

“Our main task is to protect Hungarian farmers and Hungarian families from economic and supply problems,” the minister emphasized.

European governments have scrambled to cushion the effect of gas prices hikes on consumers and industries dependent on the raw material. Gas prices have soared since Russia invaded Ukraine; the former is the continent’s top gas supplier, and EU sanctions against Russia have severed economic ties between the two.

In the fertilizer manufacturing industry, this situation is pushing up farm input costs and, pundits reckon, is adding to the risks of worldwide food shock, as essentially every major crop in the world depends on input such as nitrogen, a fact that is exacerbated by Russia also being a key supplier of fertilizers.

This article was first published in the Budapest Business Journal print issue of March 25, 2022.

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