The impact of the energy crisis on fertilizer is not over

It has been a year since the Russia-Ukraine conflict broke out on February 24, 2022. Natural gas and fertilizer were the two most affected petrochemical commodities during the year. So far, although fertilizer prices are returning to normal, the impact of the energy crisis on the fertilizer industry is hardly over.

Starting from the fourth quarter of 2022, major natural gas price indexes and fertilizer price indexes have fallen back around the world, and the whole market is returning to normal. According to the financial results of fertilizer industry giants in the fourth quarter of 2022, although the sales and net profits of these giants are still considerable, the financial data are generally lower than market expectations.

Nutrien’s revenue for the quarter, for example, rose 4% year over year to $7.533 billion, slightly ahead of consensus but down from 36% year-over-year growth in the previous quarter. CF Industries’ net sales for the quarter rose 3% year over year to $2.61 billion, missing market expectations of $2.8 billion.

Legg Mason’s profits have fallen. These enterprises generally cited the fact that farmers reduced the use of fertilizer and controlled the planting area in the high inflation economic environment as important reasons for their relatively average performance. On the other hand, it can also be seen that the global fertilizer in the fourth quarter of 2022 was indeed cold and exceeded the original market expectations.

But even as fertilizer prices have eased, hitting corporate earnings, fears of an energy crisis have not abated. Recently, Yara executives said it was unclear to the market whether the industry was out of the global energy crisis.

At its root, the problem of high gas prices is far from solved. The nitrogen fertilizer industry still has to pay high natural gas costs, and the price cost of natural gas is still difficult to absorb. In the potash industry, potash exports from Russia and Belarus remain a challenge, with the market already forecasting a decline of 1.5m tonnes from Russia this year.

Filling the gap will not be easy. In addition to higher energy prices, the volatility of energy prices also makes companies very passive. Because the market is uncertain, it is difficult for enterprises to carry out output planning, and many enterprises need to control output to cope. These are potentially destabilizing factors for the fertilizer market in 2023.