Argus Fertilizer Europe 2022

CONFERENCE REPORT

Argus Fertilizer Europe 2022

More than 650 delegates from 326 companies and 56 countries gathered at the Hotel RIU Plaza España, Madrid, Spain, 17-19 October 2022, for the Argus Fertilizer Europe 2022 conference.

Deep transformation

Javier Goni, Fertiberia’s CEO, placed Spain and the Spanish fertilizer industry centre stage in his impassioned opening keynote. Against a backdrop of unprecedented fertilizer market turmoil in Europe, Javier called for the “deepest transformation of our industry” in four priority areas – energy, sustainability, decarbonisation and nutrient use efficiency.

He admitted this was challenging given that, with huge market volatility currently, it was “difficult to say what happens next month”.

This time last year, there was a view that, with the market still reeling from the aftereffects of the Covid-19 pandemic, the trading and operating environment could only improve during 2022. Then the Russia -Ukraine conflict began.

The impacts of this conflict on Europe over the last 11 months have been – to use one of 2022’s most repeated words – unprecedented. By September last year, around 65-70 percent of European ammonia production capacity was down, due to rocketing natural gas costs and the loss of large-scale Russian gas imports (Fertilizer International 510, p8). Consequently, some 30-35 percent of the continent’s downstream nitrogen fertilizer production capacity was also offline. Production is only now startling to resume again.

To some extent, Spain has been protected from this widespread European energy shock due to its low dependency on Russian natural gas. The country also benefits from having around 40 percent of the EU’s regasification capacity. Spain has substantial and competitive solar and wind energy generation capacity too – this accounting for 40 percent of the country’s electricity generation.

Spain’s status as an agricultural powerhouse has helped make the country’s fertilizer industry particularly pioneering and innovative, Goni suggested. Spain is “Europe’s orchard” with favourable soils and climate conditions, he said, and some of the world’s most advanced crop growing systems and ag tech practices. The country has the world’s third largest agricultural area under drip irrigation, for example, after India and China.

Spain’s advanced agriculture sector, in turn, has created a substantial market for speciality and added-value fertilizer products.

Fertiberia, as its name might suggest, is the largest fertilizer producer on the Iberian peninsular, with 14 production assets in Spain, Portugal and France. Speciality products already generate 55 percent of company revenues, up from 25 percent just five years ago. These include a portfolio of nitrates, water soluble and liquid fertilizers for drip irrigation, together with biostimulants, biofertilizers and nitrogen protection products.

The company is also a green ammonia pioneer operating one of the world’s largest production systems at its Puertollano site in Spain. The green hydrogen plant at Puertollano comprises a 100 MW photovoltaic solar plant, a lithium-ion battery system with a storage capacity of 20 MWh, and a large-scale 20 MW capacity electrolyser.

Fertiberia’s ultimate ambition, says Javier Goni, is to fully decarbonise its supply chain and offer the market low carbon fertilizers as an alternative to the energy intensive commodity fertilizers that currently predominate.

Market insights

This session outlined the macro-economic and geopolitical events shaping the fertilizer raw material and finished product markets. Lawrence Templeton, business development VP for European gas, power and LNG at Argus, kicked off by providing a detailed update on Europe’s natural gas market – with a focus on drivers and trends for the leading Title Transfer Facility (TTF) price benchmark.

During the course of last year, forward TTF prices eventually rose above e200/ Mwh as the European gas supply picture became increasingly tight and inflexible, a price hike that was linked to Russian supply dwindling to below 100 mcm/day from late 2021 onwards. This tight supply situation has prompted a reconfiguration of the European gas market towards liquid natural gas (LNG) imports. (Spain, as an LNG peninsular, has had a role to play in this by re-exporting LNG to France.)

The TTF price moved above the LNG price from May 2022 and, as a result, destination pricing for US LNG favoured Europe over the summer. Europe’s growing hunger for LNG has since been accommodated by new import capacity in both the Netherlands and Germany.

Oliver Hatfield, VP for business development at Argus, followed up with an overview of the global fertilizer market situation. This was illustrated by a summary of recent price developments for three key f.o.b. fertilizer benchmarks – urea granular Middle East, MOP bulk Vancouver and DAP bulk Morocco.

Fertilizer demand growth moved ahead of supply, as the world economy restarted post-Covid, turbocharging fertilizer prices, Hatfield noted, although these increases still lagged crop price rises. More recently, however, prompted by the start of the Russia-Ukraine conflict, inflated fertilizer prices have raced ahead of crop prices to affect fertilizer affordability. This has led to demand destruction putting a brake on fertilizer consumption. “The cure for high prices is high prices – that old market adage,” commented Hatfield.

Urea price volatility has been one notable consequence of the Russia-Ukraine conflict. Europe has been ‘self-sanctioning’ by absenting itself from the market for Russian product. Consequently, it has been paying higher prices than other buying regions and countries such as Brazil.

As a Baltic supplier with fewer destinations, Russia has discounted its urea prices. However, the volume of Russian urea supply has remained robust, contrary to initial expectations, and is actually up year-on-year. The export route for Russian urea has changed in response to the conflict with Ukraine, exiting via Black Sea ports rather than through EU ports.

At the time of the conference, European nitrogen fertilizer closures had removed about one third of production capacity.

The shuttering of urea production plants was essentially a function of EU production costs exceeding urea import costs (e.g., for Egyptian sourced product). With the loss of Russian urea, Europe has a supply gap to fill or around one million tonnes per month. We should therefore expect to see some demand destruction in Europe, Hatfield suggested, as the market would not be able to replace all of this supply shortfall.

Corporate buyers panel discussion

In this moderated session Oliver Hatfield, sat down to discuss commodity procurement challenges with Hugo Carrasaco, the head of Europe at Sulphur Mills Ltd, and Marc Ostwald, chief economist and global strategist at ADM Investor Services.

Sulphur Mills has a dual perspective on procurement being both a sulphur buyer and an Indian-based sulphur producer, while ADM Investor Services is the clearing and execution arm of Archer Daniels Midland, the Chicago-headquartered commodities trading giant.

Energy makes up big part of the production costs for a low-cost commodity like sulphur, Hugo Carrasco said, while purchasing power has also decreased due to interest rate rises. Freight cost volatility is another major variable in sulphur trading. “Freight can really upset price when it’s up to 20 percent of cost,” Carrasaco said.

Marc Ostwald highlighted what he called the “misallocation of investment in productive oil and gas capacity”. This has however left opportunities for digitalisation and automation of the petrochemicals industry.

Underinvestment in [oil and gas] capacity is an additional problem linked to the unfavourable financing conditions created by central banks, suggested Ostwald. “Central banks don’t understand supply chains. The post-crash era of low interest rates is now at an end – we’re entering a more volatile era instead,” he said.

There has been a change of behaviour by Gulf Cooperation Council (GCC) countries though. Oil and gas companies in the region are “going upstream and downstream to capture margins”, according to Ostwald. This should stabilise sector margins in the longer term in his view.

When asked how long commodity market turmoil would last, Marc Ostwald replied: “At least another 18 months, although that may need to be extended.” Hugo Carrasco agreed, saying commodities would take “at least another 1-2 years to stabilise”.

Renewable energy in fertilizer production

Participating in this panel discussion were:

• Marco Van Doorn, Fertiberia’s head of green developments in hydrogen, ammonia and fertilizer
• Jacob Hansen, the director general of Fertilizers Europe
• Cleiton De Sequira, the director of business development for the US start-up Nitricity
• Prashant Chaubey, the president of Indian-headquartered Avaada Energy.

Fertiberia is the first fertilizer producer in the world producing green ammonia at scale, said Van Doorn. This has been manufactured since May 2022. The company is currently developing two other world-scale green ammonia projects and is targeting full decarbonisation of production by 2035.

Avaada is an integrated energy group benefiting from India’s conducive policy for green ammonia, said Chaubey. The company currently has a four million tonne capacity green ammonia project pipeline – with one million tonnes of this capacity already being executed.

Nitricity is introducing disruptive technology to the fertilizer industry that is capable of electrifying and distributing nitrogen production, explained De Sequira. Its on-farm fertilizer production systems, which generate nitrates from a plasma reactor powered by renewable electricity, should help cut production emissions by eliminating fossil fuels, and improve global food security and food equity, in his view.

Europe has decided it wants a green hydrogen economy, commented Hansen. “It’s exciting that ammonia will be the workhouse and carrier for that,” he said. “Yet it is not realistic for Europe to be self sufficient in green ammonia currently – imports and trading will be necessary.”

He added: “The political message is clear – Europe will have to import 10 million tonnes of green hydrogen [annually] by 2030. That will have to be imported as green ammonia.”

To this end, Fertilizers Europe is currently working on a certification scheme for low carbon ammonia. “Flexibility is needed as grey, blue and green ammonia will be produced initially,” commented Hansen.

The lesson of the Russian-Ukraine conflict, in Hansen’s view, was Europe’s need for strategic autonomy and therefore its own green hydrogen production base.

The Rhinefert Alliance

This presentation was jointly made by the three partners in the Rhinefert Alliance, a new European fertilizer distribution partnership:

• Simon Rudiger, business director at Triferto
• Luuk Haagting, product manager at Agrifirm
• Christoph Leufen, head of plant products at RWZ.

Netherlands-based Triferto trades 1.5 million tonnes of fertilizers annually. Agrifirm, in contrast, is a Dutch agricultural cooperative with more than 10,000 members and an annual turnover of e2.4 billion. It made sales of almost six million tonnes in 2021. RWZ (Raiffeisen Waren-Zentrale Rhein-Main eG), meanwhile, is Germany’s third largest agricultural cooperative.

The Rhinefert Alliance was established in response to the following challenges and pressures faced by European fertilizer wholesalers:

• Concentration of supply
• Dropping sales
• New legislation and regulations
• Demand for new and innovative fertilizers
• Demand for sustainability projects
• Internationalisation of fertilizer supply
• The shift to integrated supply chains.

The Alliance began at the start of 2022. It enables Agrifirm to secure fertilizers from Triferto for its 10,000 members using shared logistics and warehouses. RWZ’s distribution infrastructure in Germany and Luxembourg also complements and adds to Triferto’s warehouse network in France, Belgium and the Netherlands.

The Alliance’s three partners, by pooling their intelligence, can now gain a much wider and more holistic understanding of the European fertilizer market. As well as sharing useful information, the partners also benefit from a collective business strategy, access to joint warehouse locations and

other shared assets as part of the Alliance.

Better fertilizer distribution planning is another key advantage of the Rhinefert Alliance. This is valuable as – for the first time – this properly joins up upstream fertilizer production volume plans (anticipated supply) with planning for the field application of fertilizers downstream (anticipated demand).

Fertilizer industry sustainability

In a session moderated by Oliver Hatfield, the industry’s need for leadership on sustainability was discussed by:

• David Herrero, COO, Fertiberia
• Brian Wade, head of crop nutrients, Anglo-American
• Naoufal Mahdar, vice president, climate action & decarbonisation, OCP Group.

According to David Herrero, leadership on sustainability offers: “New opportunities to bring talent to the company and gain higher sales. Yes, being first movers is not without risk. But we believe in green ammonia as a long-term sustainable option for nitrogen. Securing partnerships also guarantees a staged approach to reduce risk.”

“The climate emergency means there’s no place for those born to be second: that’s too much risk for the planet and business,” said Naoufal Mahdar “We need to promote innovation from the start – offering fair and sustainable options for farmers.”

Anglo American’s under-construction Woodsmith project in the UK will generate a polyhalite product (POLY4) with the lowest per tonne carbon footprint of any fertilizer product, suggested Brian Wade. POLY4 would also be a zero waste, zero water product.

Anglo American, a company with a $40 billion turnover and more than 90,000 employees globally, is aiming to become carbon neutral by 2040. Eight mine sites are already on track to achieve this target by 2030 under the company’s ‘FutureSmart Mining’ sustainability initiative. The company’s flagship $5 billion Quellaveco copper mine in Peru, for example, is already fully electrified and digitised.

“With crop nutrients, Anglo is starting with a clean slate,” said Wade, and given the company’s targets and track record on carbon neutrality: “To put sustainability in place we don’t need to reconfigure.”

Oliver Hatfield asked the panel if decarbonisation would be costly and, if so, should the cost penalties be passed on to farmers. Would farmers be prepared to pay a premium for low carbon fertilizers, for example?

“It’s more about business models than extra costs,” said Mahdar. Carbon farming, for example, can generate extra revenues for farmers. OCP was already pursuing this by working with 1.5 million African small-scale farmers on carbon certification and soil mapping.

“I’d reframe the question – what’s the cost of inaction not the cost of action?,” said Wade, adding: “Agriculture is responsible for 30 percent of global emissions, so businessas-usual would use up the entire carbon budget to keep to 1.5 degrees of warming. Inaction therefore imposes costs on our customers – and our customers’ customers.”

Herrero agreed: “There’s a need to change and act on climate change to secure food production and, as first movers, a huge investment effort [to decarbonise nitrogen production] is necessary. The lowest cost business model requires working with the whole value chain.”

CEO roundtable

A conference highlight was the c-level roundtable on the event’s first day. This generated an engaging and wide-ranging discussion on the sustainable production, trade and application of fertilizers – and how this can positively impact global food security. Argus Media would like to thank the following individuals for their fruitful participation: Javier Goni, CEO, Fertiberia; Motti Levin, CEO, Haifa; Marouane Ameziane, Managing Director Specialty Products, OCP; Sergio Atarés, Chief R&D and Planning Officer, Fertinagro; Antonio Sancho, CEO, Incro SA; Alexander Schmitt, CMO, Anglo-American; Tim Cheyne, SVP – Global Head of Fertilizers, Energy Transition.

Argus Fertilizer Europe 2023

Building on the success of Madrid’s 2022 event, Argus Fertilizer Europe will be returning to Lisbon, Portugal, on the 17-19 October 2023 – dates to keep for your diary!