Profits of Russian chemical companies in 2023 decreased significantly

Profits of Russian chemical companies in 2023 decreased significantly

The fall in world prices for fertilizers in 2023, despite production growth to a historical maximum and improved logistics, has seriously hit the financial results of Russian companies. Thus, EuroChem’s net profit fell by more than a third, to 112 billion rubles, while Acron and Uralkali reduced it significantly. However, in 2024, sector participants expect prices to rise due to increased demand.

The net profit of one of the world's largest fertilizer producers, the Eurochem group, decreased by 37% in 2023, to 111.9 billion rubles, according to the company’s IFRS reporting. Revenue decreased less significantly - by 8%, to RUB 363.3 billion. At the same time, in the second half of the year the company improved its results and reached approximately the same level in terms of revenue and net profit as in the second half of 2022.

As Oleg Shiryaev, general director of Eurochem, explained in an interview with Kommersant, the main reason for the reduction in financial performance was the fall in prices for mineral fertilizers due to decreased demand and high inventories.

The cost of some products turned out to be close to cost. Also, according to him, the rise in prices for equipment, services and logistics had a negative impact on supply margins.

37 percent

amounted to a decrease in Eurochem's net profit under IFRS in 2023.

As noted by the head of the Center for Economic Forecasting, Nina Adamova, last year fertilizer prices were adjusted relative to the historical highs of 2022, taking into account the fall in gas and coal prices, as well as the decrease in the solvency of farmers. According to the Center for Price Indexes, average annual prices for nitrogen fertilizers in 2023 were 50–60% lower than in 2022. For example, if in December 2022 the average cost of urea was $480 per ton, then in December 2023 it was at $274 per ton (a drop of 43%). By March 2024, average prices had risen to $315 per ton.

Given this situation, the financial results of all chemical companies in Russia were seriously affected, despite the increase in production.

Yes, net profit Akron according to IFRS in 2023 decreased by 2.5 times, to 35.9 billion rubles. The group's EBITDA fell by half, to RUB 68.7 billion, and the EBITDA margin dropped from 53% to 38%. Net profit of a key Russian fertilizer producer Uralkali according to IFRS fell nine times, to 11.7 billion rubles. Revenue increased by 9.6%, to 367.5 billion rubles. Other largest Russian chemical companies - Uralchem ​​and Phosagro - have not yet published financial reports.

According to Rosstat, fertilizer production in Russia in 2023 increased by 10.3%, to 26 million tons (in terms of 100% nutrients). This is the maximum figure in Russian history. The potash fertilizer sector showed the highest dynamics (an increase of almost 25%, to 9.1 million tons). Output of the nitrogen group increased by 5.2%, to 12.5 million tons. At the beginning of 2024, the positive dynamics continued: fertilizer production in Russia increased by 20%, to 2.4 million tons.

The fall in prices also affected the results of the main global competitors of Russian companies. The revenue of the Norwegian Yara in 2023 decreased by 35%, to $15.5 billion. Adjusted EBITDA dropped 2.9 times, to $1.7 billion. Net profit amounted to only $54 million compared to $2.8 billion for 2022. At the same time, the company noted that at the beginning of 2024, the nitrogen fertilizer market in Europe and the United States is experiencing an increase in purchasing activity and an increase in prices with a lower supply volume.

According to EuroChem's forecast, by the end of the year we can count on stabilization of world prices for fertilizers and, possibly, a slight increase.

In 2024, the CEP expects an increase in average annual prices for nitrogen fertilizers in the world by 15–20%, for phosphate types (MAP and DAP) - by 10%. The fragile balance in the gas market is likely to lead to price hikes, notes Nina Adamova, and with the reduction in exports of apatite concentrate from Russia, the cost of phosphates on the global market will remain consistently high.

Olga Mordyushenko

Source link