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19 Oct, 2009 04:14

Cheap gas helping fertilizer producers plan for longer term

Fertilizer Sales will fall next year, according to the industry's international trade body. But the introduction of cheaper products means business is booming for some.

In troubled times everyone is searching for ways to save money. That’s why sales of nitrogen fertilizers which are cheaper than the rest, are holding up despite falling demand in the fertilizer industry. Mikhail Korovkin, a foreman at a fertilizer plant in central Russia believes business hasn’t been hurt that much.

“We haven’t really felt the crisis. Unloading is continuing at pretty much the same rate.”

Russian fertilizer companies are able to retain competitive pricing mainly because of cheap gas. It comprises up to 80% of the end cost of fertilizers, but Vladimir Bespalov, analyst at VTB Capital, warns this advantage can be lost quickly.

“Domestic gas prices will go up, and this will erode their competitive advantage. So, they need to develop new value added products to be competitive on international markets in the future. Exports represent a large portion of sales of domestic fertilizer producers.”

In an effort to support the industry, the state, earlier this year, abolished export duties.
Russian company, EuroChem, one of the world’s top ten fertilizer producers, has launched the production of calcium-ammonium nitrate, which has a stricter safety standard and can be sold in Europe. Technical Director at Eurochem, Aleksandr Tugolukov, says that means higher margins.

“We’re switching from far-away low-margin markets to the more profitable European one. There we’ll be earning at least an extra hundred dollars per tonne.’