This blog, the third in a series of 11 articles on commodity market developments, takes a closer look at the topics discussed in the World Bank’s April 2022 Commodity Markets Outlook.
Fertilizer prices have risen nearly 30% since the start of 2022, following an 80% jump last year. The price jump was driven by a combination of factors, including sharply rising input costs, supply disruptions caused by sanctions (Belarus and Russia), and export restrictions (China). Urea prices have surpassed their 2008 peak, while phosphate and potash prices are approaching 2008 levels. The war in Ukraine has heightened concerns about the availability and affordability of fertilizers.
Input costs have reached record highs. Rising natural gas prices, particularly in Europe, have led to a general decline in the production of ammonia, a key feedstock for nitrogen fertilizers. Similarly, rising coal prices in China, a key feedstock for ammonia, have forced fertilizer plants to cut production, pushing up urea prices. Higher ammonia and sulfur prices have also pushed up phosphate fertilizer prices.
Sanctions and export restrictions. Fertilizer prices have risen in response to the war in Ukraine, reflecting the impact of economic sanctions and disruptions to Black Sea trade routes. Russia accounts for about 16% of global urea exports and 12% of diammonium phosphate (DAP) and monoammonium phosphate (MAP) exports, while Russia and Belarus together account for two-fifths of global potassium chloride (MOP) exports. In addition, China has suspended fertilizer exports until at least June 2022 to ensure domestic supplies, exacerbating supply problems.
Supply disruptions. While urea and DAP prices have fallen in recent weeks as Indian buyers await clarity on India’s fertiliser subsidy policy and bids fall, potash prices show no signs of abating. Potash supply shortages and uncertainty have increased as Belarus and Russia have been hit with sanctions following last year’s sanctions on Belarus. In addition, Lithuania has stopped using its rail network to transport Belarusian potash to the port of Klaipeda, which typically handles 90% of Belarus’s fertiliser exports.
Demand is high. Global fertilizer consumption has remained high throughout the COVID-19 pandemic. Brazil and the United States have devoted record acreage to soybeans, a fertilizer-intensive crop. China, which is rebuilding its pig herd after an outbreak of African swine fever, has also seen high fertilizer demand due to increased feed use, especially for corn and soybean meal. Despite higher crop prices that could limit fertilizer use, fertilizer prices are now at their lowest since the 2008 global food crisis.Outlook and risks. Urea prices are expected to remain at historically high levels as long as natural gas and coal prices remain high. Similarly, DAP prices are expected to remain high as long as ammonia and sulphur prices do not fall. In addition to input costs, risks to the outlook depend on whether urea and DAP exports from China resume after June. As for potash, potash prices are expected to remain at historically high levels next year unless potash supplies from Russia and Belarus resume on the international market.
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