PhosAgro expects to find a licensor for a new $1.5 billion plant this year

PhosAgro, Russia’s largest producer of phosphate fertilizers, expects to complete the search for a licensor for its nitrogen complex by the end of the year. So far, according to Kommersant, the company cannot find a technology in Asia that would provide the originally planned volume of 1 million tons of ammonia and carbamide. Experts note that the demand for fertilizers is likely to be stable, and their prices may rise by the time the plant is launched.

Phosagro may make a final investment decision on the construction of a new ammonia and urea complex in the first half of 2024, the company’s CEO Mikhail Rybnikov told reporters. According to him, at the moment, the search for technology licensors in Asia continues, which has a chance to be completed in 2023. “After choosing a technology, the contractors still need to make financial arrangements. It usually took about six months. Taking into account the fact that we have never worked closely with licensor companies from this region before, this may take longer,” Mr. Rybnikov explained.

The fact that Phosagro is considering options for building a complex for the production of ammonia and carbamide, the company announced at the end of 2021, and in March 2022 announced the search for a licensor. At that time, investments in the project were estimated at no less than $1.5 billion, and capacities – at 1 million tons for each type of fertilizer. But, Kommersant’s sources, who are familiar with the situation, explain, until the company received a license offer that would correspond to these volumes. Most of the options come from Chinese companies, but Kommersant’s interlocutors say that while we are talking about projects with a capacity of no more than 700-750 thousand tons, which will cover the company’s internal needs, but will not allow it to sell additional products on the Russian and international markets. Now, according to them, Phosagro’s production facilities in Volkhov and Cherepovets are provided with about 75% of their own raw materials. But, Kommersant’s sources explain, the company does not have a critical need to build new facilities, and if the options offered by licensors are too expensive and not cost-effective, the company will refuse to create a plant.

As Alexander Sharabaiko, Deputy General Director for Finance and International Projects of PhosAgro, noted, if the licensor for the new plant is from China, then it will make sense for the company to get a listing on the stock exchange in the Asia-Pacific region. But, he explained, simply entering the Chinese trading floors does not give access to national investors. “If you have a certain angle of refraction on China, the Chinese economy, then yes. If we make a decision to choose a licensor for new ammonia in favor of producers from Southeast Asia, maybe then this will make more sense and interest from Chinese investors,” said Mr. Sharabaiko. Now, according to him, the company does not see practical value in this. Moreover, he says that on Asian exchanges one can only get a new listing, and it will be possible to transfer existing programs of securities issues from the London Stock Exchange there only after they are unblocked. The exchange in London stopped trading in receipts of Russian companies in March 2022. Despite this, in May, PhosAgro received indefinite permission from the Russian government to maintain its listing in London.

Nina Adamova from Gazprombank’s CEP notes that fertilizer prices have now corrected strongly from the extremely high levels of 2021-2022. But, she says, for the production complex, which will be put into operation in 2025-2026, the level of prices on the global market by this period is important, and it is very likely that it will again be high due to the conservation of plants in regions with expensive energy resources and tightening climate regulation in developed countries.

At the same time, according to Dmitry Akishin, Managing Director of Implementa, the growth of the global urea market has been and remains very modest – 1-2% per year. “Although it is worth noting that this growth is resistant to international crises,” the expert says. He recalls that Russia has traditionally been the largest exporter of carbamide, which is reinforced both by the low cost of the key feedstock (natural gas) and the developed distribution chain of our largest producers. In addition, the largest importers of our urea are India and Brazil, which do not pursue an unfriendly policy towards Russia.

Olga Mordyushenko