With global prices soaring, it seemed odd timing this week for Incitec Pivot to announce plans to close one of Australia’s largest fertiliser plants.
- Incitec Pivot announces plans to shut down its Gibson Island fertiliser plant in Brisbane
- Global fertiliser prices are soaring, putting a lot of pressure on farmers’ budgets
- One of the largest issues facing the fertiliser industry is the cost of natural gas, a key input
The rising cost of another commodity — natural gas — appears to have sealed the fate for Incitec’s Gibson Island facility in Brisbane.
“Despite extensive efforts, [we have] been unable to secure an economically viable long-term gas supply,” the company said in a statement to the ASX.
“The decision to close the Gibson Island manufacturing facility after more than 50 years of operation is expected to impact up to 170 employees.”
The company said it would cease manufacturing with natural gas at the end of 2022 but was looking into the potential of green ammonia.
The facility has spent decades converting gas into fertiliser products. According to its website, it has the capacity each year to manufacture 300,000 tonnes of ammonia, 280,000 tonnes of urea and 200,000 tonnes of ammonium.
Fertiliser supplies tight
Incitec Pivot’s decision to cease production at Gibson Island joins a long list of fertiliser news going against Australian farmers.
China has enforced a ban on some ports exporting fertilisers, and more recently Russia invoked a six-month quota on its fertiliser exports.
“Incitec’s [announcement] is not ideal in light of the other dynamics going on … and we need to get our product from somewhere, so it’s going to be a challenge,” GrainGrowers chair Brett Hosking said.
“So to hear reports [about Incitec] has thrown another spanner into the works and that little bit of extra complexity in a grower’s mind around how do I make sure I’m covered and how do I make sure I’ve got product?”
According to Thomas Elders Markets analyst Andrew Whitelaw, the announcement by Russia was another “death by a thousand cuts” for Australian farmers.
“The China ban is worse for us,” he said.
“Russia’s quota will mean hundreds or thousands of tonnes, not millions of tonnes lost to the global market, but it comes at a time when we need every tonne available.
Research by Mr Whitelaw shows Australian wheat farmers need 2.8 tonnes of wheat sold to buy a tonne of diammonium phosphate (DAP).
“The biggest risk for a grain farmer in the coming year is buying high-priced inputs but not having high-priced grain,” he said.
Inputs rising across the board
Paul McLaughlin grows watermelons and peanuts in Central Australia and normally orders his fertilisers six months in advance.
“It’s looking like it’s going to be a 40 to 50 per cent increase on most fertiliser [prices] going forward, and that’s if you can get them,” he said.
“Farmers who are not ordering them early enough might have trouble getting the fertiliser when they want it.”
He said fertilisers were not the only input increasing in price and hurting margins.
“Our diesel has gone up 50 cents a litre on 12 months ago, wages are up, and we’re paying 10 to 15 per cent more for freight than 12 months ago … so hopefully the demand for melons will counteract the extra input costs we’ve got.”
It’s the gas, gas, gas
One of the largest issues facing the fertiliser industry is the cost of natural gas, a major input in ammonia production.
Prices for natural gas reached historic highs in recent weeks as surging demand for the fuel in the Northern Hemisphere collided with tight supplies.
In 2018, Central Petroleum signed a short-term deal to supply gas from its operations in the Northern Territory to Gibson Island, and has since entered a joint-venture agreement with Incitec Pivot to develop the Range gas field in Queensland’s Surat Basin.
Managing director Leon Devaney said it was a tough situation for Incitec Pivot.
“We supplied gas from Amadeus Basin to the Gibson Island plant for one year, and then [Incitec] re-contracted with another supplier for subsequent volumes,” he said.
“I know they’ve been out looking for gas to supply that Gibson Island plant into the future, and that obviously didn’t result in a gas agreement and have decided to close Gibson Island in 2022.
Mr Devaney said he was confident Incitec Pivot would remain fully committed to the joint-venture Range project.