LNG supply shocks the fertilizer industry, forcing India's urea giants to cut production

Indian fertilizer manufacturers are facing direct impacts from the escalating situation in the Middle East. As Qatar's liquefied natural gas (LNG) supply is interrupted due to the Middle East conflict, Indian urea producers have begun to cut production. If the situation continues, India may be forced to significantly increase high-priced imports before the agricultural peak season, threatening the government's fiscal consolidation plans.

According to media reports citing informed sources, Indian Farmers Fertiliser Cooperative Ltd. and other producers have initiated production cuts at some urea plants. The aforementioned sources warned that if the supply disruption continues, related companies may be forced to shut down production facilities.

The supply shock has triggered a chain reaction in the commodity market. Prices of raw materials for fertilizers, such as ammonia and sulfur, have risen simultaneously, further increasing production costs and exacerbating market concerns about the spread of inflationary pressures. Meanwhile, Sui Northern Gas Pipelines Ltd. in Pakistan has also notified customers that it cannot supply regasified LNG to its fertilizer plants due to the Middle East conflict, with the suspension effective from midnight Wednesday. A company notice seen by Bloomberg indicates that most of the LNG required by Pakistan comes from Qatar.

Production Cuts Initiated, Shutdown Risks Rising

LNG is a core raw material for urea production, serving as both an energy source and a key production input for this globally used fertilizer. The interruption of supplies from Qatar has directly cut off the raw material sources for Indian fertilizer plants, and some facilities have already begun to reduce production.

Informed sources indicated that if the interruption lasts longer, companies may further shut down production facilities, but no specific details were provided. Suresh Kumar Chaudhari, the Secretary General of the Indian Fertilizer Association, stated that current inventories are sufficient to meet short-term demand and expressed optimism about the situation. "We are very optimistic that the war may end soon," he said in a media interview on Tuesday. "If the war continues, that will be our concern."

A senior official from India's fertilizer department stated that the geopolitical situation is being continuously monitored, and there is currently no shortage of gas supply, but did not comment on the urea production cuts.

Agricultural Peak Season Approaches, Import Pressure Increases

If the production cuts continue, India will face pressure to expand imports before the peak demand period. India is the world's largest rice producer and exporter, as well as the second-largest producer of sugar, wheat, and cotton, with seasonal demand for fertilizers peaking at the start of the June monsoon season each year.

High-priced fertilizer imports will directly impact the Indian government's fiscal targets. New Delhi is working to reduce fertilizer subsidy expenditures for farmers and plans to cut the fiscal deficit as a percentage of GDP from the target of 4.4% for the 2025-26 fiscal year to 4.3% for the next fiscal year. If import costs rise significantly, this path to deficit reduction will face obvious disruptions, and the planned subsidy cuts in the annual budget may also be hindered.

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