PETALING JAYA: Malaysia is largely insulated from nitrogen-based fertiliser supply shock, thanks to its strong domestic production capacity and access to natural gas feedstock.
However, the country remained exposed to risks in phosphatic inputs with elevated prices and geopolitical tensions likely to weigh on regional crop output, according to a report by BMI, a unit of Fitch Group.
“With fertiliser prices remaining elevated and our country-risk team’s view that the US-Iran conflict could extend, we believe the risk of reduced application rates for 2026/27 grain crops across South-East Asia is increasing, particularly as key application windows approach, posing increased downside risk to production,” BMI said.
The report added that Malaysia, Indonesia and Vietnam are among the most insulated from nitrogenous fertiliser supply constraints, given strong domestic production capacities that should help limit downside risks to application rates.
This relative insulation stemmed from domestic production and access to natural gas feedstock, which supports nitrogen fertiliser output.
However, BMI cautioned that the effectiveness of this insulation would depend on policy efforts to prioritise domestic supply amid attractive export opportunities, highlighting the risk that producers might favour exports over local needs.
At the same time, Malaysia and its regional peers faced broader exposure beyond nitrogen-based fertilisers.
“We believe the region is more uniformly exposed to constraints in phosphatic fertiliser supplies due to its reliance on imported inputs,” BMI said.
The tightening supply picture has been compounded by rising global prices.
“Since the escalation of the conflict on Feb 28, global urea prices have risen sharply,” BMI noted, adding that the US Gulf New Orleans granular urea spot index increased by 40.4% from Feb 27 to close at US$660 per tonne on March 20.
This reflected expectations of tighter global supply linked to constrained exports from the Gulf Cooperation Council region, a key supplier of both fertilisers and natural gas feedstock. As planting seasons approach, sustained high prices could alter farmer behaviour, BMI cautioned.
“Sustained high prices for nitrogen-based fertilisers, including urea, on which grain production is highly reliant, could prompt under application, raising downside risks to 2026/2027 crop yields,” it added.
It expected impacts to be uneven across markets, reflecting differing production structures, policy responses and exposure to imports.
“As of March 22, these markets have not indicated a clear prioritisation of domestic supply, such as through tighter export controls, raising the risk of supply leakage as producers seek to capitalise on more attractive international prices,” BMI said.
Beyond nitrogen, phosphatic fertilisers present a more persistent vulnerability. Malaysia relies significantly on external suppliers, with BMI noting that Malaysia, alongside Thailand, rely more heavily on alternative suppliers, including Egypt, which accounts for approximately 50% and 90% of their phosphatic fertiliser imports respectively.
Although this reduced the dependence on China, both markets remained vulnerable to higher prices stemming from tightening global supply conditions and elevated logistical and transport costs, it explained.
Separately, an analyst with a local brokerage noted that the ongoing tensions in the Middle East are sending ripples through global fertiliser markets, and Malaysia will likely feel the impact.
“Malaysia cannot fully escape the impact of international supply disruptions, higher global costs and logistical bottlenecks,” he said.
