Norway's Yara cuts ammonia output as gas prices surge

A worker walks at the Yara ammonia plant in Porsgrunn, Norway August 9, 2017. Picture taken August 9, 2017. REUTERS/Lefteris Karagiannopoulos/File Photo
  • Ammonia is key component of nitrogen fertiliser
  • Yara's cut corresponds to 2 mln tonnes ammonia/year
  • European gas price more than tripled this year
  • Cost of food production rises, analyst says

OSLO, Sept 17 (Reuters) - Norway's Yara (YAR.OL) is curtailing its European ammonia output due to a surge in natural gas prices, the fertiliser maker said on Friday, in a sign of rising input costs for food production.

The cuts follow similar action by rival CF Industries Holdings (CF.N), which on Wednesday said it was halting operations at two British plants, citing high costs of natural gas feedstock.

"Including optimisation of ongoing maintenance, Yara will by next week have curtailed around 40% of its European ammonia production capacity," the Oslo-based company said.

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The world's second largest ammonia producer has a European output capacity of 4.9 million tonnes per year, some 2 million of which will be affected, a company spokesperson said.

Europe can still import ammonia for its nitrate fertiliser plants from other regions of the world, where gas prices may still be lower, but the output cuts are still expected to have ripple effects.

"Higher gas prices mean inflated food prices," Carnegie analyst Morten Normann said.

Day-ahead gas prices at the Dutch TTF hub, a European benchmark, have more than tripled this year to record levels, driving up power prices as the winter heating season approaches with below-average levels of gas in storage.

Yara will continue to monitor the situation and aims to keep supplying customers but curtailing production where necessary, it said.

Norwegian oil and gas major Equinor (EQNR.OL) on Wednesday said it expected the fundamentals driving high gas prices in Europe to remain in place during the autumn and winter seasons.

"It's being pushed by weather anomalies, by general inflation in commodity prices and supply chain bottlenecks..., but mainly the prices are driven by basic fundamentals of tight supply and high demand," Equinor CFO Ulrica Fearn told an energy conference in Oslo. read more

Yara's share price fell by 4.4% to seven-month lows.

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Editing by Raissa Kasolowsky, Jason Neely and David Evans

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