Fertiglobe does not expect the current geopolitical situation to significantly affect its business, because higher fertiliser costs have enabled the company to compensate for additional logistics expenses, its chief executive has said.
The US-Israeli war on Iran has driven up transport costs for commodities, forcing producers such as Fertiglobe – the world’s largest seaborne exporter of urea and ammonia – to seek alternative routes.
But with fertiliser prices rising in certain markets, Fertiglobe is making use of the additional income to absorb those extra costs, Ahmed El Hoshy told The National.
“We've done some pretty abnormal movements of vessels that we've never done before, and we've had vessels now go from Algeria to Australia and Nigeria to Australia,” he said.
The company does not have any problem storing its products, Mr El Hoshy said. Normally, Fertiglobe's commodities are loaded on to ships in Abu Dhabi before crossing the Strait of Hormuz.
But with the waterway effectively closed as a result of the conflict, alternative shipping methods, such as by land, have become part of the equation.
“We'd have to truck it to other ports that are outside the strait and send that vessel out. That's many more logistical movements than you would typically have,” Mr El Hoshy said.
He added that, while the extra logistics considerations incur higher costs, the rise in prices more than makes up for the additional spending.
On the Indian market, for example, Fertiglobe's products have increased in price from about $500 to more than $900 a tonne in the past six weeks.
“So we're able to afford those logistical movements and we're trying our best to move product out to be able to get to the global markets and customers,” Mr El Hoshy said.
He added that he does not expect the prices to crash when the strait is reopened. Commodities have swung wildly amid tension in the region and uncertainty in negotiations between Washington and Tehran.
“We had a few bait and switches where we thought we were in that position a few weeks ago … you'd see drops in share prices, a reflection of views of drops in fertiliser prices,” he said.
“I do not think it will be that simple. There are a lot of ships backed up in the strait right now to move out. Some producers in the GCC are shut down, so they don't have that much stock to move right away and they have to restart … I don't think it's going to happen overnight, but it should ease pricing for sure.
“Prices have been parabolic, but they also took some time to go up … I don't give price predictions, even though we're not in crisis.”
Urea, the most commonly used chemical for fertiliser, has risen in price from about $465 a tonne on the eve of the war to about $695 on Wednesday, according to Trading Economics. The price peaked at more than $720 on April 15.
When the situation stabilises, Mr El Hoshy expects Fertiglobe to normalise its export flows “relatively quickly”, depending on how the situation in the strait unfolds.
“We have a couple of loaded ships that we can move … that can be relatively soon depending on the traffic and what that looks like,” he added.
Fertiglobe is the largest producer of nitrogen fertilisers in the region, with a production capacity about of 6.6 million tonnes of urea and ammonia through subsidiaries in the UAE, Egypt and Algeria.
The company has continued to expand its global reach. Last year, it established Fertiglobe Australia to operate assets it acquired from Chinese-based company Wengfu.
