European nitrogen market rallies on gas price hike, Iran conflicts

European urea ammonium nitrate (UAN) prices increased in early March as the Middle East conflict drove up natural gas and ammonia costs, exacerbating supply constraints from Russian sanctions and freight disruptions, resulting in a bullish market for nitrogen fertilizers across both Eastern and Western Europe.

UAN 32% FOB Baltic rose $60/mt week over week to $340/mt, with sales to the US confirmed within a $340-$350/mt range, while UAN 30% FCA ex-tank Rouen rose Eur62/mt week over week to Eur420/mt for March delivery, and UAN 28% FCA ex-tank Germany prices rose Eur62/mt week over week to Eur392/mt. The parallel increase reflected broader supply-side pressures, as the Middle East conflict raised feedstock prices and heightened uncertainty about the duration.

In Ukraine, major producer Ostchem raised domestic prices twice within three days, increasing UAN 32% offers to UAH 29,300/mt CPT by March 5. "A big part of our needs in gas is covered by imported gas," the producer said, linking the increases to rising European energy costs.

Production costs

Natural gas prices in Northwest Europe climbed above Eur60/MWh on March 9, the highest since January 2023, pushing estimated ammonia production costs to around $740/mt. Import prices stood at $750/mt CFR duty paid/duty free, excluding CBAM costs, last calculated at $58.92/mt for 2.2 mt CO2 equivalent emissions.

"The surge in freight has made it increasingly difficult for traders to secure affordable shipping," a UAN shipbroker said, adding that "a shortage of available vessels and elevated rate levels have left the market largely stagnant."

Freight tightness stemmed from ships rerouting away from high-risk areas like the Strait of Hormuz, reducing tonnage availability worldwide. Despite constraints, regular UAN shipments continued from Russian Baltic ports, including St. Petersburg and Ust-Luga.

Market turmoil intensified after major European producers, including LAT Nitrogen and Poland's Grupa Azoty, withdrew offers citing surging gas prices and geopolitical uncertainty. LAT Nitrogen said it has "withdrawn all of its offers from the market until further notice" and decided to "reduce the production of ammonia at its factories to a technical minimum level." Poland's Grupa Azoty said it would resume accepting fertilizer orders after temporarily halting new contracts due to the gas price spike.

Supply tightness comes as the EU's Carbon Border Adjustment Mechanism (CBAM) adds significant cost pressure to imported ammonia feedstock used in UAN production.

From 2026, importers must purchase CBAM certificates to cover the carbon footprint of ammonia shipments, effectively raising the landed cost and supporting bullish sentiment across the nitrogen fertilizer complex. This mechanism compounds existing supply constraints by making imports less economically attractive, pushing UAN prices to elevated levels just as Europe's spring application season gets underway.

Market participants expressed concerns about potential demand destruction if prices remain at current levels for an extended period, though farmers face limited alternatives with field work already in progress and crop nutrient requirements immediate.

"The situation today, tomorrow could be different," a German producer said, linking uncertainty to gas price volatility rather than panic-buying, as sufficient product remained available.

Platts, part of S&P Global Energy, assessed its UAN 32% spot price at $340/mt FOB Baltic, its UAN 30% spot price at Eur420/mt FCA ex-tank Rouen, and its UAN 28% at Eur392/mt FCA ex-tank Germany March 5.