Poland’s Azoty Group suspends fertiliser production as high gas prices sting

Poland’s Azoty Group suspends fertiliser production as high gas prices sting
Pulawy said that it would cut its ammonia output to “about 10%” of production capacity. / Azoty
By bne IntelliNews August 24, 2022

One of Europe's biggest fertiliser producers, Warsaw-listed Polish chemicals group Azoty and its listed unit Pulawy have suspended or reduced production of some products, including nitrogen fertilisers and ammonia, due to skyrocketing prices of gas,  the companies said on August 23.

“Due to record prices for natural gas, the main production feedstock used by Grupa Azoty … the company decided that as of August 23, it will temporarily shut down its nitrogen fertiliser, caprolactam and polyamide 6 production units,” the company said in a market filing.

Pulawy said that it would cut its ammonia output to “about 10%” of production capacity.

“Although there are no problems with the availability of gas, the current situation in the gas market, which determines the profitability of production activities, is extraordinary and completely beyond the control of [the group], and could not have been predicted,” the two companies said in similarly-worded statements.

"There is no doubt that such large reduction of output must affect Azoty's results in a very significant way. It is unknown yet how long [the stoppage] will take, whether it is a question of one week, month or quarter," Lukasz Prokopiuk, an analyst with DM BOS brokerage, told the state newswire PAP.

Such low production coupled with high fixed costs will generate negative Ebitda on a daily basis. In July, output was higher, but if the stoppage continues until mid- or end-September an Ebitda loss in Q3 will be possible.

Meanwhile, another Polish fertiliser maker, Anwil – which is owned by energy giant PKN Orlen – also said on August 23 that it would suspend production of nitrogen fertilisers due to high prices of gas.

The news will affect Polish farmers, who are one of the key voter constituencies for the ruling Law and Justice (PiS) party.

“Farmers may be uneasy about [the cut in production] but there are well over 100,000 tonnes of fertilisers in Grupa Azoty’s warehouses … There will be enough for the autumn season,” Agriculture Minister Henryk Kowalczyk told PAP

Dutch TTF Gas Futures hovered around €260 per megawatt-hour (MWh) for September deliveries on August 23, up from below €90 in late May and nearly ten times more versus August 2021.

The price rally owes to Russia’s cutting supplies to Europe, which is desperate to fill storage ahead of winter to ease a looming gas crisis brought about by Russia’s waging war against Ukraine and the West’s sanctions on the Kremlin.

While in indirect conflict over Moscow’s war in Ukraine, Europe remains much dependent on Russian gas supplies, cutting or reducing which is now expected to bring a major economic slowdown, if not recession, in the EU.

EU leaders keep accusing Russia of manipulating supplies to stoke an economic and energy crisis in the cold season to weaken Europe’s support for Ukraine.

Grupa Azoty’s stock fell 5% to PLN34.2 (€7.17) on the Warsaw Stock Exchange on August 23. Pulawy’s share price dropped 2.18% to PLN71.8.