LNG supply shock impacts the fertilizer industry, Indian urea giant forced to cut production

Indian fertilizer producers are facing direct impacts from the escalating Middle East situation. As Qatar’s liquefied natural gas (LNG) supplies are disrupted due to Middle Eastern conflicts, Indian urea manufacturers have begun reducing production. If the situation persists, India may be forced to significantly increase high-cost imports before the peak agricultural season, threatening the government’s fiscal consolidation plans.

According to media reports citing insiders, Indian Farmers Fertiliser Cooperative Ltd. and other producers have started reducing output at some urea plants. The insiders warned that if supply disruptions continue, related companies may be forced to shut down production facilities.

The supply shock has triggered a chain reaction in the commodities market. Prices of raw materials for fertilizers, such as ammonia and sulfur, have risen in tandem, further increasing production costs and heightening concerns about inflation spreading in the market. Meanwhile, Sui Northern Gas Pipelines Ltd. in Pakistan has also notified customers that it cannot supply re-gasified LNG to its fertilizer plants due to Middle Eastern conflicts, with the suspension effective from midnight Wednesday. A company notice seen by Bloomberg indicates that most of Pakistan’s LNG comes from Qatar.

Production reductions have begun, and the risk of shutdowns is rising

LNG is a core raw material for urea production, serving as both an energy source and a critical input for this widely used global fertilizer. The disruption of Qatar supplies directly cuts off raw material sources for Indian fertilizer plants, with some facilities already initiating reductions.

Insiders said that if the disruption lasts longer, companies may further shut down production facilities, though no specific details were provided. Suresh Kumar Chaudhari, Secretary General of the Indian Farmers Fertiliser Cooperative, stated that current inventories are sufficient to meet near-term demand and expressed optimism about the situation. “We are very optimistic; 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 Department of Fertilizers said that the geopolitical situation is being closely monitored. Currently, natural gas supplies are not short, but no comments were made regarding urea production cuts.

Peak agricultural season approaches, import pressures surge

If production cuts continue, India will face pressure to ramp up imports before demand peaks. India is the world’s largest rice producer and exporter, and also the second-largest producer of sugar, wheat, and cotton. Its seasonal fertilizer demand peaks each year during the monsoon season starting in June.

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

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