Energy Crisis Butterfly Effect... Impact Extends from Logistics to Grain Prices

Nitrogen, Urea and Other Key Raw Materials Surge Amid Natural Gas and Coal Crisis
North American Fertilizer Prices Hit Record High... Agflation Expected to Worsen

[Asia Economy Reporter Park Byung-hee] As international fertilizer prices soar, there are growing forecasts that 'agflation,' referring to inflation driven by agricultural products, will intensify further. The reason fertilizer prices are skyrocketing is due to the sharp rise in prices of natural gas and coal, the main raw materials for chemical fertilizers. The surge in energy raw material prices, which is causing a logistics crisis in Korea due to a shortage of urea solution, is now spreading into agflation concerns.

According to Bloomberg News, North American fertilizer prices hit an all-time high on the 6th (local time). On that day, the Green Markets North America Fertilizer Price Index rose 3% from the previous day, reaching $1,048 per short ton (Ts, 907.2 kg). This was the highest level since the index began being compiled in January 2002.

The main cause of the soaring fertilizer prices is the sharp increase in natural gas prices in Europe and coal prices in China.

Natural gas is the largest raw material component in nitrogen fertilizer production. Currently, European natural gas prices have surged 5 to 6 times compared to the beginning of the year. As a result, about 20 UK power suppliers have gone bankrupt because they could not bear production costs, and major European companies have halted factory operations due to soaring electricity bills, triggering an energy crisis.

Large fertilizer producers in Europe have also consecutively stopped factory operations or reduced production. Major fertilizer producers Nutrien and Mosaic announced last week in their third-quarter earnings reports that fertilizer prices are expected to continue rising.

The surge in coal prices in China is also a factor driving fertilizer prices up, as coal is an important raw material for urea fertilizer production. China, the world's largest urea producer and exporter, produces urea by extracting ammonia from coal.

China, which mainly imported coal from Australia, has completely halted coal imports from Australia amid conflicts over the COVID-19 origin investigation. As coal supply decreased, an energy crisis occurred nationwide in China, causing power outages, and the producer price index soared to its highest level in 26 years due to large-scale production disruptions.

Recently, citing reduced urea production due to coal shortages, China has strengthened export quarantine measures on fertilizer items. As a result, urea, which previously could be exported without separate quarantine or inspection, has been required to undergo quarantine since the 15th. This has led to the recent domestic urea solution crisis and is a cause of rising fertilizer prices.

With fertilizer prices rising, concerns are emerging that already high food prices will increase further. When fertilizer prices rise, farmers' production costs increase, causing an overall rise in crop prices. Bloomberg reported that fertilizer currently accounts for 35% of corn farmers' production costs, but this is expected to increase to 45% next year.

The world is already experiencing severe agflation due to supply chain disruptions. International corn prices have risen 25% compared to a year ago, and wheat prices have increased by 22%. The Food and Agriculture Organization (FAO) of the United Nations announced that the global food price index for October was 133.2, the highest since July 2011. The FAO global food price index has risen 31.4% compared to a year ago.

This content was produced with the assistance of AI translation services.