Global Fertiliser Market at Risk of Disruption Due to Middle East Tensions

Overview

The escalating tensions in the Middle East pose a significant threat to the global fertiliser supply chain, potentially leading to a surge in prices. Despite this, industry players report that they currently have sufficient inventories to meet demand for the next couple of months.

Current Inventory Levels

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Companies in the fertiliser industry have sufficient stocks to meet demand for the next couple of months, thanks to carryover inventory from the previous season. Rahul Mirchandani, president of the Indian Micro-Fertilizers Manufacturers Association, attributes this to the lacklustre performance of the previous season, which left behind leftover inventories.

Potential Disruptions

While the current inventory levels may cushion the immediate impact of the disruptions, prolonged conflicts in the region could tighten supplies of key inputs and drive up prices globally. CRISIL warns that 30% of India's fertiliser requirement is imported from the Middle East, with 40% of those imports coming from the region. India also relies on the Middle East for 30% of its imports of key raw materials and intermediates, including rock phosphate, phosphoric acid, and muriate of potash.

Natural Gas Availability

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The availability of natural gas is another critical concern for the fertiliser industry. Liquefied Natural Gas (LNG) is a crucial feedstock used in manufacturing urea, and any reduction in supply or spike in prices would raise production costs. The suspension of production by QatarEnergy LNG following military attacks on its facilities has intensified the risk.

Impact on Indian Fertiliser Producers

India's dependence on LNG imports from QatarEnergy, which accounts for 50% of its LNG requirements, makes the country's fertiliser production particularly vulnerable to disruptions. The conflict-driven supply shock has already pushed up prices across the petrochemical and fertiliser value chains, according to Emkay Global Financial Services.

Contingency Measures

Industry players are already evaluating contingency measures to deal with potential supply disruptions. Mirchandani said that companies are exploring alternative fuels like solar, diesel, and coal, but systems cannot be changed overnight. Companies are also looking at import substitution to reduce dependence on overseas suppliers for certain raw materials.

Import Substitution and Alternative Sourcing

To mitigate supply risks, companies are exploring alternative sourcing routes, including imports from regions such as South Africa. However, such diversions could raise freight costs and extend delivery timelines.

Conclusion

The escalating tensions in the Middle East pose a significant threat to the global fertiliser supply chain, potentially leading to a surge in prices. While industry players report that they currently have sufficient inventories to meet demand for the next couple of months, prolonged conflicts in the region could tighten supplies of key inputs and drive up prices globally.