Double whammy for miners and farmers as ammonia plants shut down

Orica said on Tuesday it was grappling with an outage at its Kooragang Island ammonia plant in NSW in a blow to the supply of a key ingredient used in explosives in the mining industry and in fertilisers for agriculture.

The problem at Kooragang compounds what appear to be much bigger problems at Yara’s ammonia plant in the iron ore-rich Pilbara region in Western Australia.

The double whammy comes amid global supply shortages, given that more than 25 per cent of ammonia flows through the Strait of Hormuz.

Yara, Australia’s largest ammonia supplier, has been forced to shut operations for at least two months, with the curtailment in supply of raw ingredients a further setback amid wartime shortages.

The Yara operations were rocked by a power outage at the plant on the Burrup Peninsula.

The Norwegian-run company’s Pilbara operations produce about 850,000 tonnes of ammonia a year. About 140,000 tonnes of that is fed into an explosives plant next door that is owned by Yara and Orica.

The explosives plant is a key supplier to iron ore and other miners.

The balance of the Yara ammonia is contracted to buyers in Australia, Korea, Taiwan, Thailand, Indonesia and Japan.

“Repair work is required, and initial assessments indicate this could take around two months and curtail the production of ammonia and technical ammonium nitrate during this time,” a Yara spokesman said. “Yara well understands the importance of its products to customers and will work to bring the operations back online as soon as practical.”

The supply outage has occurred at a tense time for both Australian and global manufacturers as oil and international LNG prices spike due to the accelerating conflict in the Middle East.

Miners are staring down the barrel of diesel shortages and, in some cases, working on contingency plans for changes to fly-in, fly-out rosters to conserve aviation fuel.

Workers stayed on site for longer as part of emergency measures during the Covid-19 pandemic, with similar measures now being contemplated to reduce flights back and forth to mines, according to industry sources.

Farm leaders warned last week that developing fertiliser shortages were “more concerning” even than fuel, with some smaller farmers already out of supply and no guarantee of any supply to grow the nation’s major summer crops.

Some farmers face a doubling of fertiliser prices and, worse, potentially no supply at all from May or June, due to disrupted supply routes in the Middle East.

Agriculture Minister Julie Collins last week was unable to say how much of key fertiliser urea existed for the short-, medium- and long-term use by Australian farmers.

Orica said it expected the problems at Kooragang to be resolved shortly.

It was less optimistic about the Yara plant it relies on for the supply of ammonia.

“Orica is actively managing the potential impact of this event by working to secure alternative supply from current inventory and its diversified global manufacturing and supply network,” the company said.

“Our priority is to minimise the impact on our customers and to maintain supply.”

Ammonia is used to make urea, which is also exported in large volumes through the Strait of Hormuz.

Yara chief executive Svein Tore Holsether warned this month that any lengthy shutdown of shipments through the Strait of Hormuz would be catastrophic, and would dramatically reduce farm yields.

Orica expects the Kooragang plant to re-open by the middle of next week. The shutdown has been blamed on a mechanical failure.