Global fertilizer markets remain volatile
MOSCOW, Russia - 2022 has seen unprecedented turbulence in the global fertilizer market, mainly due to Western sanctions on the Russian and Belarusian economies linked to the Russia-Ukraine conflict. High prices have prompted farmers to cut back on fertilizer use, which threatens to hamper food production in some countries. Recently, prices have drifted downwards, but there are signs that the storm is not yet over, and new problems may be on the horizon.
Laura Cross, director of market intelligence at the International Fertilizer Association (IFA), said the impact of sanctions, high raw material costs and export restrictions had led to the prospect of sharply reduced fertilizer supplies, while higher prices had led to demand disruption in markets driven by affordability.
"Since then, some markets have stabilized, namely nitrogen and phosphate, while others remain disrupted, such as potash," Cross said.
The IFA's latest Medium Term Outlook estimates that globally, fertilizer use decreases by close to 3% to 194.7 million tons in 2021 and by close to 5% to 185.1 million tons in 2022. According to the IFA, global fertilizer uses in 2022 is 15 million tons below the record high of 200.2 million tons reached in 2020. Across key markets, the picture changes dramatically.
"In absolute terms, East and South Asia lead the global reduction in these two years, accounting for almost 60% of the reduction," Cross said." In relative terms, three regions reduced fertilizer use by at least 10 per cent over the two years: West Asia (down 17 per cent), Western and Central Europe (down 15 per cent) and Africa (down 14 per cent)."
Turkey led the decline in consumption in West Asia as the severe weakness of the lira exacerbated fertilizer inflation. In Western and Central Europe, fertilizer use was affected by higher prices and the 2022 drought. In Africa, where farmers are sensitive to higher fertilizer prices, potassium consumption fell by almost half (44%), significantly more than in other regions, Cross said.
However, it would be incorrect to say that the Russian and Belarusian fertilizer giants have suffered much because of Western sanctions
Although sales to foreign customers declined in the first 10 months of 2022, the Russian fertilizer industry posted net revenues of nearly $16.7 billion, up nearly 70 percent from the previous year. Despite a sharp decline in exports to the U.S. and Europe, Russian suppliers are experiencing strong demand in other markets.
Russian think tank Business Profile estimates that Russian fertilizer exports to India more than tripled last year. Vietnam, Turkey and Brazil also saw significant growth. RAPU also highlighted strong sales growth to markets in the Middle East and Africa and has high hopes for Southeast Asia in 2023.
Food safety may be threatened
Russian companies have repeatedly warned that the global market could face dire consequences if restrictions on their fertilizer exports are not lifted.
RAPU claims that "declining fertilizer use in some parts of the world due to Western sanctions against Russia in 2023 could lead to a global food disaster." foreign markets, but also lead to a lack of Western technology for Russian industry.
"We hope for the early removal of sanctions barriers: restrictions on exports of Russian products and imports of new production technologies," the association said. "All of this is causing significant damage to global food security."
Concerns about the global food industry's supply may be at least partly true. It is important to leave room for developing countries in the global gas and fertilizer markets, writes David Malpass, former president of the World Bank Group, in a December 2022 blog post. In especially, supply disruptions look challenging for farmers in sub-Saharan Africa.
"Over time, greater production will be critical to replace Europe's dependence on Russia, but in the short term, developed economies must avoid locking in current supplies to over-protect against the risk of shortages," Malpass said.
The World Bank estimates that global fertilizer prices will gradually decline over the course of 2023 and 2024. Per-ton prices for urea, diammonium phosphate and potassium chloride will average $650 and $600, $750 and $650, and $500 and $479, respectively. New sources of nitrogen-based fertilizers from Turkey and potash from Brazil will partially offset the price pressure and reduce the risk of supply shortages.
Nonetheless, it is still safe to say that the global fertilizer market is likely to remain tight for the time being. There is room for cautious optimism, though any escalation of geopolitical tensions could again disrupt vulnerable Russian and Belarussian exports and spark an upward price rally on the market.
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