Instability in fertiliser-producing regions such as Ukraine and North Africa is preventing overcapacity in the market from driving down prices, according to an analyst at fertiliser consultancy Cru.

Global production of Urea, a key nitrogen-based fertiliser, is increasing by 6-7 per cent a year.

“We certainly won’t be expecting demand to reach anywhere near that rate. Market oversupply remains and capacity should outpace demand,” said Cru nitrogen team leader Alistair Wallace, speaking at the GPCA Fertiliser Convention in Dubai on 17 September.

Global capacity utilisation has fallen this year to 80 per cent for the first time since 2001-02 as new production comes on stream. According to Cru, 30 million tonnes a year (t/y) of new capacity has come on stream since 2009 and another 30-40 million t/y is planned or under construction.

However, prices remain stable due to instability in fertiliser-producing regions. Much of the new fertiliser capacity has been coming on stream in North Africa, where political upheaval has hindered projects and operations.

At the same time, at least two plants in eastern Ukraine have been taken offline due to hostilities in the region, while political tension between Russia and the EU has dampened the market.

“Overcapacity is there, but Chinese export costs are rising and there is always potential for upside price movements giving the instability in Russia and North Africa,” said Wallace.