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Skyrocketing gas prices drive up ammonia costs: sources

Highlights

Higher hydrogen costs contributing to bullish European ammonia markets

Russia-origin cargo trades at $710/mt FOB Black Sea

Skyrocketing gas prices are driving up European ammonia production costs as the rest of the world have seen markets grow quiet, market sources said Oct. 12.

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Ammonia prices remain firm amid higher gas prices as "at least six or seven" production facilities have shut down in Europe, a trading source said. Ammonia, which S&P Global Platts began assessing Oct. 12 at five regional locations, is typically a product of fossil-derived hydrogen. Hydrogen costs in Europe have continued to soar recently as costs of natural gas are at all-time highs.

"Big producers have to adapt a bit to the situation, which is extreme," a trade source said. "We have almost never seen those prices in history."

A 25,000 mt Russia-origin cargo was heard sold at $710/mt FOB Black Sea for late October delivery into Northwest Europe, trade sources confirmed. Platts assessed the CFR Northwest Europe Ammonia price at $760/mt, based on freight and duties paid from cargoes originating in the Black Sea.

The trend remains bullish in Europe, although that is creating some panic in Mediterranean and North African markets where gas prices have not soared as high, the source said.

It has also created a "bottleneck" getting into Northwest Europe where bigger buyers have largely covered themselves until November, he said.

Middle East/Far East trade activity quiet

In the Middle East and Far East, trade activity has been "extremely quiet," due largely to slow demand from India and China.

Market players are looking at a potential arbitrage from east to west, although challenges remain due to lack of shipping capacity.

In Asia, suppliers try to keep their contractual supplies to a minimum, with some trying to move cargoes out of Asia, but that is not easy with few vessels available that can make those routes for ammonia.

"For Middle East cargoes, our target is below $500/mt FOB and for CFR Far East Asia the target is below $550/mt for November delivery cargoes," an Asia-based trading source said.

The Chinese market is weak due to flooding in the region curtailing fertilizer demand, as agricultural demand weakens with winter ahead. The source noted domestic prices in China at around Yuan 4000 RMB calculated ($550/mt), for prompt cargoes.

Platts assessed the FOB Middle East price at $525/mt Oct. 12, and assessed the CFR Far East Asia price at $575/mt.

US more bullish

US production remains curtailed due to the impact of hurricane season with the most negotiated monthly contract price of $665/mt for CFR Tampa October shipments, increasing $50 from September's price of $615/mt and catching the market by surprise.

Sentiments at the end of September were slightly bullish, with expectations of a rollover or slight increase for the October contract. Following high gas prices in Europe and disruptions to production in the US, however, negotiations landed on a much higher price for the month.

Impact of hurricane shutdowns in the US is still lingering there, while high natural gas has pushed up prices in Europe and they have cut back on ammonia production, so there is it very tight, very different from the situation in Asia right now.