Middle East sanctions intensify! New regulations at the Strait of Hormuz impact fertilizer costs

Regarding the fertilizer market, the recent linkage between the geopolitical situation in the Middle East and agricultural cost factors has intensified.

On the 24th, US Treasury Secretary Bassent announced a new round of economic sanctions against Iran, expanding the sanctions to sectors such as aviation, digital assets, gold, shipping, and technology, and suspending multiple licenses related to Iran. Iranian President Pehzizehyar also stated on the same day that the US should change its words and practices when dealing with Iran and that relying on power and bullying would only make the relevant process more complicated. Iranian Foreign Ministry Spokesperson Bagaei said that the economic pressure imposed by the US on Iran belongs to "economic warfare".

In the Midwestern United States, some farmers have reported a significant increase in input costs such as fertilizers and diesel. Farmers growing corn and soybeans in eastern Nebraska mentioned that the price of a phosphorus-containing fertilizer has risen significantly compared to ten years ago. A study by the US Farm Bureau Federation showed that without government assistance, farmers growing nine major crops including corn would face significant losses this year.

Iranian Deputy Foreign Minister Gharibabadi on the 25th said that according to the new understanding reached between Iran and Oman regarding the new route of the Strait of Hormuz, the route entering the Persian Gulf will pass through Iranian waters, and the route leaving the Persian Gulf will pass through Oman and Iranian waters. No warships are allowed to pass through this strait, and only commercial ships are permitted to do so. Pakistani military and Iranian security agency sources disclosed that the US and Iran have reached consensus on the terms of the ceasefire agreement, including free navigation in the Strait of Hormuz.

From the perspective of the impact on the industrial chain, some institutions have made judgments regarding fertilizer costs and agricultural supply and demand. China Merchants Securities analyzed in a related report that "although the increase in production in Russia and Ukraine partially offset the impact of reduced production, the global inventory-sales ratio continued to decline, coupled with the restricted export from Ukraine, the ending inventory of US corn tightened, and the supply pressure intensified, which may push the international grain price center upward."

CITIC建投证券 mentioned in a report on Hubei Yizi that "on the other hand， the fertilizer sector was affected by the geopolitical conflict and saw a significant increase in costs. The company stabilized its basic position through strategic procurement， energy-saving and cost reduction， process upgrading， and deepening industrial chain collaboration."

Dongfang Securities believed in a report on Guoguang Co.， Ltd. that "we believe that the decline in the company's fertilizer gross profit margin is mainly due to the fact that since this year， some raw materials such as single fertilizers (mainly phosphorus fertilizers) have been pushed up in price due to the significant increase in the cost of their upstream sulfur. While the company's product end is a technical service product and is not an addition of raw materials."