Conflict in Eastern Europe completes a month and the fertilizer sector remains apprehensive

The world fertilizer market, which was already facing consecutive and strong price increases throughout 2021, became even more apprehensive over the last month, given the conflict in Eastern Europe, a region that is one of the largest global suppliers of fertilizers and of natural gas.

According to data from Anda (National Association for Fertilizer Diffusion), Brazil is the fourth largest consumer of fertilizers in the world. The consumption growth rate of this input was 4,3% p.a. in the last 20 years, against a global rate of 4,8% p.a. Among intermediate fertilizers, Brazil is the second largest consumer of potassium in the world, behind only China. Brazil is also the third largest consumer of phosphate fertilizer (P2O5) and the fourth largest consumer of nitrogen.

In 2021, according to Anda, Brazilian fertilizer consumption totaled 45,85 million tons, with 85% of these fertilizers being imported. Soy, corn and sugar cane crops are the three main demanders – together, they accounted for 73% of annual consumption.

Among the main imported fertilizers is potassium chloride – 96% of the volume of this product consumed in Brazil is imported. In turn, just four countries are responsible for almost 80% of world production: Canada (32%), Belarus (18%), Russia (18%) and China 12%. In 2021, Brazil imported around 12,8 million tons of potassium chloride, 32,6% of which came from Canada, 28,2% from Russia and 18,7% from Belarus.

National dependence on foreign fertilizers became even more evident in 2021, when the European Union (EU) imposed economic sanctions on Belarus and prevented the export of potash fertilizer through EU member countries. More recently, with the war between Russia and Ukraine, the EU imposed economic sanctions on the Russian country, which should further limit the supply of this fertilizer to the world. In March last year, data indicates that KCl was traded at the Port of Vancouver/Canada, on average, at US$248/tonne; this value was tripled to US$815/t in March 2022.

As for nitrogen, according to Anda, Russia is the second largest producer in the world (10%), behind China (29%). Among the nitrogen imported by Brazil, urea accounts for over 72% of the nutrient N content, and Russia is the second main supplier of this raw material, corresponding to 17% of all urea imported in the last five years (2017-2021 ). In the case of ammonium nitrate, the impact is even more intense, as almost all fertilizer (98%) imported by Brazil comes from Russia. For phosphate fertilizer, the world's largest producers of phosphorus pentoxide (P2O5) are China (39%), Morocco, the United States and Russia. Among imported fertilizers, around 74% of P2O5 is represented by MAP, and Russia was the second largest supplier of the fertilizer, responsible for around 21% of imported phosphate in the last five years.

International nitrogen prices have been soaring since October. In one year (from March/21 to March/22), the ton of prill urea sold in the port of Yuznhy (Ukraine) increased in value by 110%. In the same period, the average value per ton of ammonium nitrate doubled in the Russian port of Saint Petersburg. As for phosphate fertilizer, the average prices of MAP (monoammonium phosphate) traded in the ports of Casa Blanca (Morocco) and Saint Petersburg rose by 92% and 88% respectively.

This entire context raises the question of the excessive dependence of agricultural production on imported fertilizers. Regarding this issue, the existence of potash mines on national soil is highlighted. In addition to the potassium mines explored in Sergipe, study carried out by the Ministry of Mines and Energy identified potash mines in the center-west of Amazonas, estimating that this region would have a reserve of 3,2 billion tons of the ore. The economic exploitation of these mines, however, faces legal proceedings.

In the case of the national reduction in nitrogen supply, this was due, according to the Forbes article, to a strategic decision by Petrobras to sell assets aiming to reduce debt, exiting the fertilizer market from 2017 onwards – factories in Camaçari (BA) and Laranjeiras (SE) were closed in March 2018. The following year, two Units in these locations were leased to the Unigel. The nitrogen factory in Araucária (PR) was put into hibernation in 2020 by Petrobras, due to its operating deficit, as the raw material used (asphalt waste) was more expensive than the final products (urea and ammonia). UFN3 (Nitrogen Fertilizer Unit 30), in Três Lagoas (MS), had its activities suspended in 2018, following Petrobras' previous decision to exit the fertilizer segment. Recently, according to the government of the state of Mato Grosso do Sul (http://www.ms.gov.br/acron-planeja-retomar-obras-da-ufn3-em-julho/), the Russian group Acron showed interest in buying the unit. The departure of the state-owned company resulted in a sharp decrease in the supply of national nitrogen. It is worth mentioning that your project for UFN4 (Linhares – ES) was not even off the ground and UFN5 (Uberaba – MG), which was supposed to be completed in 2014, had its project interrupted in 2015. UFN5 would be an important unit for the production of ammonia, which is the raw material for the production of MAP (mono-ammonium phosphate). The big bottleneck to make these nitrogen fertilizer units competitive is the value of natural gas.

The fact is that Brazil has become a major food producer for the world and is also classified as one of the major players in global food security. However, agricultural production has grown dependent on imported fertilizers in the last 20 years. The conflict between Russia and Ukraine clearly exposed the vulnerability of our production system when it comes to fertilizers. This is a broader issue, which has worsened with the decline in the reliability of having an important source of supplies in general on the foreign market – in this case, fertilizers in particular. Rearrangements in the pattern of commercial exchanges are immediately necessary. National fertilizer production is a strategic issue and needs to be evaluated quickly, with a view to defining how it will be implemented. Complexities of a political-institutional and socio-environmental nature need to be addressed taking into account national interests in a range of interrelated issues.