The Strait of Hormuz is a narrow waterway between Iran and Oman. Following the outbreak of war in Iran, shipments through the strait - which typically handles about a third of global fertilizer transported by sea - came to a virtual halt. For Fertiglobe, a fertilizer producer based in the UAE, the risk was immediate. Fertiglobe quickly set up new land-based and maritime transport options to keep shipments moving and capitalize on elevated prices; it is also examining rail as part of its export strategy.
The Strait of Hormuz is a critical chokepoint for global energy and fertilizer flows. Disruptions there can send shockwaves through commodity markets, as seen when Iran's conflict escalated. For Fertiglobe, which relies on shipping urea and ammonia across the region, the ability to pivot quickly to overland routes and alternative ports has been vital to maintaining operations and capturing higher prices.
Elevated fertilizer prices have compensated for the extra transport expenses.
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Despite the transport hurdles, the company's UAE facilities shipped out 56% of what they produced in the second quarter. In Egypt and Algeria, Fertiglobe's production continued without interruption.
Ahmed El Hoshy, Fertiglobe's chief executive, put it plainly. "We still expect to export through the Strait of Hormuz," he said, "but we want the flexibility to continue producing and moving product if it is closed."
The company avoided any production shutdowns beyond planned maintenance because it increased storage capacity at several sites to prevent bottlenecks.
Natural gas, a key input for fertilizer production, is subject to competition among Europe, South Asia, and Southeast Asia. El Hoshy noted that if cooling demand strengthens and supply remains tight, natural gas costs will likely be the primary influence on fertilizer markets. Fertiglobe's production sites in the UAE, Egypt, and Algeria give it flexibility to source gas and manage costs across different regions.
Maritime threats have increased lately in the Red Sea as Yemen's Houthi rebels have attacked ships. Fertiglobe can ship all its Egyptian output via the Mediterranean, while its Algerian operations remain unaffected. The troubles in the Red Sea continue to pose a major threat to the fertilizer trade, especially for ammonia deliveries to Europe, which helps keep prices elevated there. Uncertainty about Saudi shipments via the Red Sea is also increasing the price gap between markets on either side of the Suez Canal, allowing Fertiglobe to benefit from its spread of production sites.
The worldwide fertilizer market has shown a milder response to the recent Hormuz disruption compared to the spring months. This disruption arrived after the North American and European application season ended, and rising grain prices could boost farmers' purchasing power and sustain fertilizer demand. China's return to exporting fertilizer starting in June has also helped stabilize the market.
El Hoshy projected that China would ship about 5 million tons of urea in 2024, a slight increase over the previous year.
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