Phosagro may build new plants in Cherepovets and Volkhov

Company “Phosagro”, Russia’s largest producer of phosphate fertilizers, is considering the possibility of building new facilities for the production of ammonia and urea in Cherepovets and Volkhov. This was announced on March 3 by PhosAgro CEO Mikhail Rybnikov (his words are given in the release).

There are no details of future projects in the message. Vedomosti sent a request to a representative of Phosagro.

Carbamide is obtained from ammonia and carbon dioxide. The current capacities of Phosagro for the production of ammonia are 1.8 million tons per year, nitrogen fertilizers (ammonium nitrate, ammonium sulfate and urea) – 2.6 million tons per year.

In mid-2021, the then CEO of PhosAgro, Andrey Guryev Jr., already spoke in an interview with Interfax that the company was thinking about creating a nitrogen plant. At that time, Cherepovets or Volkhov were also considered as a site. Guryev then specified that the ammonia-carbamide complex costs approximately 120 billion rubles. In November of the same year, he specified that the ammonia-carbamide complex with a capacity of 1 million tons of ammonia and 1 million tons of carbamide per year would be commissioned in Cherepovets at the end of 2025. But in June 2022, Rybnikov emphasized that no final decision had been made on the project .

PhosAgro’s investment program for the next five years (2023-2027) is planned at a level of more than 250 billion rubles, the company reported in December 2022. But the plant project was not included in these investments.

PhosAgro’s revenue in 2022 increased by 35% to 569.5 billion rubles, the company announced on March 3. This was due to an increase in sales volumes and prices on world markets, as well as a change in the structure of trade in favor of high-margin types of fertilizers. According to PhosAgro, the average price for urea in 2022 was $573/t on a FOB basis (“loading on board”) Baltika, which is 21% higher than the same period of the previous year. The company’s adjusted EBITDA for 2022 increased by 39% to RUB 267 billion, net profit increased by 42% to RUB 184.7 billion.

According to Nina Adamova, senior analyst at the CEP of Gazprombank, in 2021-2022. Russian companies in the fertilizer sector “earned record profits”, and the sector’s revenue over the past year increased by more than 1.5 times.

“Phosagro’s plans are absolutely logical to direct the earned funds to strategic goals of maintaining and expanding its share in the global market for nitrogen and complex fertilizers,” Adamova concludes.

According to Dmitry Smolin, a senior analyst for metallurgy and mining at the Sinara investment bank, most likely, PhosAgro previously considered the possibility of building a production site using Western technologies and equipment (from the USA), but now it has to reconsider the project in favor of other technologies and suppliers – for example from China. According to the expert, the total capacity of the two new Phosagro plants could be about 1 million tons of ammonia and about 750,000 tons of urea, taking into account the completion of domestic ammonia needs.

According to Smolin, Phosagro lacks its own ammonia production capacity, which the company is forced to purchase on the domestic market. “Construction of enterprises will make it possible to close this need,” the expert concludes.

As Aleksey Kalachev, an analyst at Finam, recalls, PhosAgro supplies the market mainly with phosphorus-containing fertilizers, which also include nitrogen. In his opinion, expanding the production of ammonia and urea in this way will allow the company to increase the production of not only nitrogen fertilizers, but the production of phosphorus-containing mixed fertilizers (ammophos, diammonium phosphate, etc.). “Complex fertilizers are one of the most demanded and fastest growing segments on the world market,” the expert emphasizes.

Even though 2022 average prices were higher than 2021 prices, they have been falling since last March, Smolin said. According to the analyst, the declining price of gas (a feedstock for ammonia production. – Vedomosti) in Europe and the excess supply of nitrogen fertilizers have led to a correction in export prices for carbamide over the past 12 months by 55% to $ 310 per tonne FOB Baltic. “In fact, carbamide prices have returned to the average level over the past 5 years. We do not expect their further decline, and the price dynamics will correlate with the prices for gas and ammonia,” Smolin emphasizes.

On March 3, at the TTF hub in the Netherlands, spot gas prices fell below $500 per 1,000 cubic meters. m. Such a price in Europe was fixed only in August 2021. In the spring of 2022, quotes were significantly higher, and in March they approached $3,900 per 1,000 cubic meters. m.

As Phosagro points out in its 2022 operating and financial release, the nitrogen fertilizer market in 2023 Q1 is characterized by oversupply “due to high carryover stocks in Europe and the Americas.” “This continues to have a negative impact on prices,” the company notes.

As Adamova emphasizes, the competitiveness of Russian suppliers is great and is based on raw material advantage, diversified sales channels and a large distribution base in Russia and in many countries of the world.

As the energy crisis of 2022 showed, Kalachev recalls, Russian ammonia producers have a competitive advantage in the form of relatively inexpensive and guaranteed access to raw materials and energy – and not at world market prices, but at regulated tariffs (for gas. – Vedomosti). “That is, Russia has a very competitive cost of production of ammonia, carbamide and nitrogen fertilizers,” the analyst concludes.

In addition to external demand, according to Adamova, Russian producers can count on continued rapid growth in the domestic market. Kalachev recalls that by 2030, the Ministry of Agriculture predicts an increase in purchases of mineral fertilizers up to 8.8 million tons in the active substance per year from the current 5 million tons. And the average application rate (according to the strategy for the development of the agricultural industry) should increase from the current 55 kg per hectare to over 80 kg.