The energy crunch is forcing a major fertilizer maker to shut down two U.K. plants, the first sign that a record rally in gas and power prices is threatening to slow the region s recovery momentum.
CF Industries Holdings Inc. said Wednesday that it s halting operations at its Billingham and Ince manufacturing centers due to high natural gas prices, with no estimate for when production will resume. Energy futures fell Wednesday on signs of Europe curbing consumption.
The move comes as Europe is facing an extreme squeeze on energy supplies, with Gas and power prices breaking records day after day. The continent has run out of time to refuel storage facilities before the start of winter as flows from top suppliers Russia and Norway remain limited. There is also a fight for shipments of liquefied natural gas, with Asia buying up cargoes to meet its own demand.
Soaring prices are exposing the risk of power outages this winter, according to Goldman Sachs Group Inc. Blackouts would likely send energy prices higher, compounding concerns about inflation and adding to the rising costs businesses are already shouldering for raw materials.
CF has so far announced the most likely line of companies operating in the region, but others are warning of the most drastic blow back.
High energy prices are creating inflationary pressure on every other cost that will end up being passed to customers, said Pascal Leroy, senior vice-president of core ingredients at Roquette Freres SA, a food processing company based in northern France. And France s top sugar producer Tereos warned of a rise in natural gas prices raising production costs tremendously for the company. Europe s energy markets are also the latest example of the toll that soaring commodity prices are having on the global economy. Tight supply of everything from aluminum to oils have sparked concerns over a lasting run for inflation. Higher costs for heating homes will bite consumer wallets at a time when they are also paying more food and many still struggle from the pandemic s economic fallout.
In the U.K., Benchmark natural gas prices tripled in Europe and The UK this year. The crunch worsened on Wednesday after a fire knocked out a key power cable linking Britain with its top industrial electricity supplier France, boosting gas demand for electricity production in the U.K.
Gas prices fell as much as 10% and power prices dropped almost 6% on Thursday before a paring decline.
The closure of these plants, which mainly produce ammonium nitrate, will cause the company to lose some production volumes, according to Alexis Maxwell, an analyst at Bloomberg Intelligence. The larger potential impact will likely be on global pricing for fertilizer as concerns grow that others are purchasing same, she said.
The market will read this as other European producers are likely to shut down and nitrogen prices will continue to rise on supply shortages, Maxwell said.
Fertilizer prices are already high and that adds to increasing costs for farmers, who are paying more for everything from land and seeds to equipment. Higher costs of production may mean food inflation is on the way.
We wouldn t be surprised to see more nitrogen and chemicals production idled across Europe in the coming days until gas prices moderate, Joel Jackson, an analyst with BMO Capital Markets, said in a report.