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Major UK Fertilizer Plants Shuttered Due To Skyrocketing Natural Gas Prices

Tyler Durden's Photo
by Tyler Durden
Thursday, Sep 16, 2021 - 04:15 AM

Fertilizer producer CF Industries Holdings Inc halted two fertilizer plants in the UK on Wednesday, according to a company press release. 

CF Industries Holdings, a top manufacturer of hydrogen and nitrogen products, released a statement today indicating that its Billingham and Ince, UK, manufacturing facilities suspended operations "due to high natural gas prices." There was no timeframe on when the plants would reopen. But reasonably, one would suspect when gas prices come back down. 

Jim Reid, the chief credit strategist at Deutsche Bank, told clients today that in the "26 years of having a Bloomberg terminal, I've never pulled up so many gas price graphs as I have over the last 24 hours." 

Reid is looking at benchmark UK natgas front-month contract has risen almost 400% since March, from 40 pence per megawatt-hour to 194 pence intra-day, before closing around 164. 

The credit strategist describes tight supplies as a significant driver in the melt-up of gas prices, stemming from dwindling Russian gas flows to Europe. 

He also noted power prices are rising as Europe's transition to a low-carbon future hit a stumbling block as wind speeds in the North Sea are among the slowest in 20 years, idling turbines.  

CF's plants produce ammonium nitrate fertilizers that are made from natgas. 

"There's also a fight for supplies of liquefied natural gas, with Asia buying up cargoes to meet its own demand. Shutting down these plants, which largely produce ammonium nitrate, will cause the company to lose some production volume," according to Alexis Maxwell, an analyst at Bloomberg Intelligence. 

The impact here will be supply destruction and may send fertilizer prices even higher:

"The market will read this as other European producers are likely to shut down, and nitrogen prices will continue to rise on the supply-side shortage," Maxwell said

Fertilizers prices are already high because soaring food inflation has pushed farmers to increase plantings, thus using more nutrients. Also, the latest price surges have been due to CF's Donaldsonville, Louisiana, plant declaring a force majeure last week after Hurricane Ida wreaked havoc on the US Gulf Coast. 

All of this is feeding into inflation on a global scale and is getting out of hand. To curb out of control European natgas prices, Germany has to certify Russia's Nord Stream 2 to begin shipments - but as we noted earlier today, that could take months and may mean inventories on the continent aren't resupplied in time for winter. 

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