Q2 2022：Top four international agrochemical companies achieving sales growth amid energy crisis, cost pressures to come gradually

After the start of the Russia-Ukraine conflict and its negative effects on the European energy market, Holland’s TTF Gas Futures again surged 32%, the largest single day rise in six months. According to Wall Street Journal, BASF’s energy costs soared by €800 million year-on-year, reaching €1.1 billion in the second quarter or an increase of 266%. As the world’s second largest chemical production base, Europe is facing significant challenges caused by energy cost rises and capacity limitations. Under the current circumstance, will the global agrochemical industry decline? This paper will present an industry analysis based on the performance data of the top four international agrochemical companies for the second quarter of 2022.

Table 1   Sales of the Top Four in Q2 2022

Sales of the top four in the second quarter of 2022 stand out strikingly, while impact of energy crisis causes lags

Looking at the sales performance of the top four international agrochemical companies in the second quarter of 2022, despite the sharp rises in energy, raw material, intermediate and logistical costs due to geopolitical issues, they have all achieved double-digit growth in sales and EBITDA. Among them, the Syngenta Group topped the list with sales of $9.2 billion, an increase of 24% compared to the same period in 2021. Bayer CropScience ranked first in growth rate among the top four with a sales growth of 28.7%, achieving sales of €6.461 billion. The market performances of Corteva and BASF Agricultural Solutions in the second quarter were surprisingly good both in terms of sales and EBITDA, compared to the same period in 2021.

In view of the report, the energy cost pressures caused by the Russia-Ukraine conflict has yet to have an obvious impact on the business performance of the top four companies.

BASF closed down its business operations in Russia and Belarus on July 10, 2022, but its second quarter performance report shows that the pressure of energy price rises have yet to be felt, due to a low-price energy stock + long-term supply + government subsidy arrangement. In addition, like energy price rises, the prices of major commodities have increased due to the energy crisis, which could temporarily offset the impact of energy cost rises.

Bayer’s business operations in Russia and Ukraine accounted for around 3% of its full-year sales in 2021. Due to the conflict, the company’s energy supply and global supply chain have been disrupted to a certain extent. In 2021, Bayer’s energy cost accounted for only around 3% of the total cost of products sold. In the second quarter of 2022, the uncertain geopolitical situation and volatile natural gas supply have yet had a significant fiscal impact on Bayer’s business operations. Bayer is currently preparing to cope with the economic situation in the second half of 2022, so it can deal with the impact of any potential gas shortages. Its measures include adapting its production process to reduce dependence on natural gas, switching to alternative energy sources, and implementing energy-saving programs. In the meantime, Bayer is expanding its supplier network and will increase its energy stocks if possible. 

The Syngenta Group’s previous growth was primarily driven by the introduction of innovative products and services, as well as the offset to cost rises by productivity gains and product price rises. The Syngenta Group has promoted new products and strengthened its market standing in key regions, which helped achieve sales growth. Corteva could temporarily overcome difficulties in procurement, logistics and energy supply, due to the huge demand for agrochemicals in North America, as well as the company’s flexible price adjustments.

So far, the Russia-Ukraine conflict has not had negative effects on the performance of the mentioned companies. The reality is that geopolitical issues and unstable international trade have helped trigger an energy crisis and a food crisis. On the one hand, related conflicts have mainly affected the raw material supply side, which have not only increased energy prices, but have also pushed up the prices of raw materials and pesticide formulations. The food crisis and energy crisis are expected to increase the prices of agricultural products, which will lead to increased agricultural planting and higher pesticide prices. When there is adequate capacity within agrochemical enterprises, as well as plenty of market demand, pesticide volumes and prices will both increase, which clearly happened in the previous period. Currently, the notable performance improvements of these companies in the second quarter could offset energy cost rises. 

Gas supply and cost stresses will gradually increase in H2 2022

As we enter the second half of 2022, the energy supply and cost pressures faced by chemical enterprises are becoming more worrying. In particular, following the shutdown of the Nord Stream 1 pipeline and Russia’s suspension of gas supplies to Germany through its main gas pipeline, the European energy market will face more serious issues than in the first half of the year. More than 40% of the raw materials used in European chemical production come from natural gas while one-third of the energy used for chemical production depend on natural gas. As well as energy prices, the energy crisis will lead to higher prices for all other major commodities.

The supply and pricing of natural gas increase costs at the source of the chemical industry chain, which is then passed on to downstream sectors. On the other side, EU chemical productions could be reduced or even shut down in succession, which will result in a significant reduction of supplies of a various major chemical materials, causing the global chemical supply and demand structure to change. 

BASF said that if the supply of natural gas falls below 50% of maximum demand, it will close down its production site in Ludwigshafen, Germany. Norwegian fertilizer producer Yara has shut down the second of its three synthetic ammonia plants, but its production plan has not been finalized. All indications show that the operations of the agrochemical industry will not be at the optimistic side at the end of this year or even next year, and the severity and final outcome will depend on the political games between the US, the EU and Russia.