Exclusive-Ammonia maker AGF Nitrogen weighs shutdowns due to gas costs, demand slump, CEO says

By Jan Lopatka

PRAGUE, Nov 4 (Reuters) - AGF Nitrogen, Europe's second-biggest ammonia and fertiliser maker, has halted some ammonia production lines and more could follow within weeks as it grapples with high gas prices and a slump in demand, its CEO Petr Cingr told Reuters.

Supply disruptions resulting from the conflicts in Ukraine and the Middle East have driven up global prices for natural gas — the main raw material and energy source used to manufacture ammonia and nitrogen fertilisers.

Those high gas costs have made production more expensive for companies like AGF Nitrogen and, coupled with Strait of Hormuz shipping constraints, put fertiliser prices beyond the budgets of many farmers.

Cingr told Reuters in an interview on Tuesday that AGF Nitrogen — part of the Czech conglomerate Agrofert founded by billionaire Prime Minister Andrej Babis who put it in a trust fund this year — is already running its nitrogen units at minimum capacity of 80% to 85%.

He said the company had shut down production units located near the sea and begun importing ammonia.

"This has been happening since September when gas prices started increasing quickly," he said.

Still, production remains too high given the state of the market, he said.

"Today, the situation is that the market either starts buying now, or we will have to shut down some (additional) units within weeks, because we will not even be able to store products."

European gas prices rose above €100 per megawatt-hour over the past week. While they dipped to around €90 on Wednesday, that is still about three times the levels seen before the US and Israel attacked Iran in late February.

Price hedging options, meanwhile, were limited as the market has mostly moved to monthly contracts, making it impractical to pre-buy gas for longer periods, Cingr said. 

PRODUCTION RESTARTS COSTLY, SALES A FRACTION OF NORMAL LEVEL

AGF Nitrogen has stopped one line in France and another is in stop-and-go operation, Cingr said. The stoppages are expensive, with the cost each restart at the high end of the single-digit millions of euros range, he said.

AGF Nitrogen has eight ammonia production lines in total, located in France, Germany, Slovakia and Austria. The company has annual capacity of 3.5 million metric tons of ammonia and 7 million tons of fertiliser, making up some 20% of the European market, Cingr said.

Across its facilities, it consumes around 30 terawatt hours of natural gas annually.

One sector that continues to perform is AdBlue, a fuel additive made from urea that is used to reduce nitrogen oxide emissions in modern diesel vehicles.

Fertiliser purchases by farmers, however, have dropped to a fraction of their normal levels due to high prices, Cingr said, though they may eventually recover when farmers are pressed for time ahead of the next season.

Industrial demand, mainly for ammonia, was down by about half, he said.

UNCLEAR OUTLOOK STYMIES NEW INVESTMENT

The current market difficulties come on top of a longer-term decline in European industry that has included the recent end of production at German chemicals and plastics firm Leuna Polyamid, which had been a significant AGF Nitrogen customer, Cingr said.

AGF Nitrogen was halting investment projects pending a clearer long-term outlook for the sector in Europe, he said.

Aid from national governments to assist fertiliser purchases for farmers would help, he added. And he urged the European Union to introduce gas price caps for industry and measures to reduce the cost burden of carbon allowances for critical supplies like chemicals.

(Reporting by Jan Lopatka; Editing by Nina Chestney and Joe Bavier)