Producers link local growth to the availability of incentives
Nitrogen fertilizer producers in Brazil urged the public sector to find solutions to mitigate the significant burden that high natural gas costs impose on local manufacturers, aiming to boost production volumes and reduce reliance on imports.
"Natural gas represents 80% of the production cost of nitrogen fertilizers, such as urea or ammonium nitrate, meaning it is a key input," said Guilherme Schmitz, vice president of Marketing and Agronomy at Yara, during an industry seminar on Sept. 15.
When comparing Brazil's gas costs today with those in other regions like the Middle East or the US, these costs present a significant challenge for local nitrogen fertilizer production, he added.
"Having a gas policy to unlock and enhance the competitiveness of local fertilizer production is essential," Schmitz said.
The Norwegian fertilizer producer's industrial complex in Cubatão, located in the state of São Paulo, "still resists or survives in this context, while others have not been able to remain active due to these production costs," he said.
Yara is proceeding with a hibernation process for phosphate fertilizers and sulfuric acid production until the end of the year in two plants in Brazil, focusing on its "core activities -- the production of NPK and nitrogenous fertilizers," as announced in February.
Schmitz spoke at a seminar on the development of the Brazilian fertilizer industry held at the headquarters of the Federation of Industries of São Paulo, attended by public sector authorities and business leaders.
Business leaders at the event supported a congressional bill ("Profert") that would provide incentives to the fertilizer industry, including natural gas tax exemptions for the sector.
As an example of the impact of gas costs, Senator Laércio Oliveira, who drafted the bill, highlighted the case of Unigel. The Brazilian chemical company idled two contracted Petrobras plants in the Northeast of the country, citing gas pricing issues.
Following an agreement that returned the plant to Petrobras, nitrogen fertilizer production at the facilities is expected by the end of the year. Petrobras will operate as its own gas supplier.
Meanwhile, the industry expects Brazilian authorities to "unlock" the public program "Gas for Employment" (Gas para Empregar, in Portuguese), launched in 2023. The initiative aims to increase the country's gas supply and reduce costs for fertilizer producers, a process that industry players are eager to accelerate.
Rodolfo Galvani, chairman of Galvani Fertilizantes' board and controlling partner, also highlighted the impact of gas costs on production when asked by Platts, part of S&P Global Commodity Insights.
"Petrobras is practically a monopoly, with supply and marketing, making prices very difficult to make nitrogen fertilizer production viable," he said.
Speaking at a previous event at the British Chamber of Commerce in August, he considered gas costs a "very serious problem" for nitrogen fertilizer producers, comparing prices at around $14-$15/Btu for producers in Brazil, against $2.5-$3/Btu for manufacturers in the US.
Local producers also mentioned investments related to the development of other renewable energy sources for production.
Brazil faces the challenge of reducing import reliance on fertilizers, which currently accounts for more than 85% of the market. According to government data, 67 new projects are in the industry portfolio, totaling Real 24.4 billion (around $4.6 billion) in investments.
While local production reached 7.21 million metric ton, or 17% of the market, in 2024, the goal is to reach 19.6 million mt, or 35% of the market, by 2030.
According to José Carlos Polidoro, adviser to Brazil's Ministry of Agriculture and Livestock, this would support demand growth up to 58.5 million mt/year by 2030.
More to unlock ahead
However, Brazilian producers face further challenges. Galvani also requested that national authorities accelerate licensing for projects, such as the long-standing Santa Quitéria mining project in the northeast region's state of Ceará.
The project is still awaiting the issuance of the authorities' license, which the company hopes will be solved by the fourth quarter, allowing for project development in 2026-27 and ramping up operations in 2028.
Platts last assessed granular urea CFR Brazil at $425/mt on Sept. 11.