Yara currently has some 270 kt of ammonia production offline as of mid-October as the company seeks to respond to negative margins for upgrading gas to ammonia in Europe amid elevated TTF gas prices.
Yara curtailed 150 kt of ammonia and 115 kt of finished products in the third quarter, the ammonia and fertilizer giant revealed in its results announcement yesterday.
The curtailments have taken place primarily at non-integrated ammonia plants — specifically Ferrara (Italy), Tertre (Belgium), Brunsbuttel (Germany), Le Havre (France), and Sluiskil (The Netherlands) — which produce excess ammonia beyond what is needed for their integrated urea production, allowing Yara to replace that ammonia with imports.
Finished product margins positive, while ammonia suffers
The company does continue to produce ammonia in Europe for production processes where it cannot be replaced by imported nitrogen. “Right now, the spread in Europe between cash cost of ammonia and ammonia price is negative, but the spread between gas prices and nitrates is positive,” observed CFO Magnus Ankarstrand. “That’s why there’s still significant production economics for nitrate production in Europe.”
The company says it can curtail up to approximately 1 mt of European ammonia production capacity annually without affecting finished product output, owing to surplus ammonia from integrated plants and ammonia produced for nitrates in Sluiskil.
Meanwhile, beyond the high gas costs, the ammonia market has to contend with lost demand from producers of phosphate fertilizers like DAP and MAP who have themselves shut down production amid the sulfur crisis. “Since phosphate producers are unable to secure sulfur, they don’t need to buy ammonia,” added a Yara executive.
Memories of previous gas spikes
Looking at the market overall, Yara executives cite third parties’ estimates that between 25-28% of European ammonia is currently offline. Recalling the continent’s most recent experience with gas price spikes, one observed that it “doesn’t look that different from ’21-’22,” albeit with a contraction from a slightly lower base.
At that time, the widespread closure of ammonia production across Europe rebounded on the merchant CO2 market, given that the biggest source of the carbon dioxide used in Europe to produce sparkling beverages, stun animals before slaughter, or preserve foods in modified atmospheric packaging systems was byproduct from ammonia production.
Image source: Yara International ASA
Written by Shannon Behary
