eurochem-annual-report-2011

The following table highlights our nitrogen strategy to continuously emphasize
higher value-added production. In 2011, we continued to channel lower
value-added ammonia for the production of premium, lower-gas-content,
nitrogen fertilizers.
Sales volumes (KMT)
SWOT analysis
Average
nitrogen
content % 2011 2010
Strengths Weaknesses
• Diversified customer base, including solid foothold in key home markets
(Russia, Ukraine, and Western Europe)
• Economies of scale
• Advantageous cost positioning: in Russia due to relatively low natural
gas prices, in Belgium due to proximity to end-users
• Production flexibility helps adapt to demand and maximise margins
• Convenient logistics and proximity to own transhipment terminal
Change
%
Ammonia 82% 242 521 (54%)
Urea (prilled/granulated) 46% 1,920 1,709 12%
Ammonium nitrate 34% 1,732 1,710 1%
Urea ammonium nitrate 32% 719 680 6%
Calcium ammonium nitrate 27% 191 140 37%
Over the period 2012-2016, EuroChem plans to invest up to USD 700m
into the Nitrogen segment. These investments include the launch of LDAN
production and the upgrade of ammonia facilities at Nevinnomysskiy Azot
and Novomoskovskiy Azot. Approximately 57% of the planned capex is
development-driven, while 43% is maintenance-related.
2011 key developments
• Globally, nitrogen fertilizer sales increased 3.6%, from 103.3 MMT in 2010
to an estimated 106.9 MMT in 2011. Global consumption is expected to
grow by an additional 1.9% and reach 108.9 MMT in 2012.
• The industry continued to consolidate with most European fertilizer
companies being up for sale. EuroChem agreed to acquire BASF fertilizer
assets in Antwerp and Ameropa acquired a majority stake in the Romanian
fertilizer producer Azomures. Late in the year, Russia’s SIBUR Holding agreed
to sell the Kemerovo and Angarsk fertilizer plants to the Siberian Business
Union, while a 51.2% share of its Perm plant went to UralChem. Group
DF took control of the Severodonetsk and Cherkassy plants as well as the
distribution of “Minudobreniya” (Rossosh) reported to have been acquired
by Russian businessman Arkady Rotenberg in August 2011.
Opportunities Threats
• Further increase self-sufficiency in Russia with own natural gas
• Develop/acquire distribution platform in Western European market
• Build or buy significant new ammonia capacity in regions of lower-cost
natural gas such as the Middle East or North Africa
• Product mix enhancement with value-added, lower-gas-content and
premium product lines
• Further incremental efficiency improvements though deep modernisation
• Russian and CIS markets offer unmatched growth potential
• Supply Western European operations with lower-cost feedstock
• Prices took off early in the year before levelling off at an average
USD 425/tonne (FOB Yuzhny) for prilled urea, the most widely used
nitrogen fertilizer globally, compared to USD 288/tonne and USD 250/tonne
in 2010 and 2009 respectively.
• Limited capacity additions:
– Engro Fertilizers Ltd (Pakistan – 1.3 MMT prilled urea; 0.75 MMT
ammonia), was commissioned in spring 2011, but gas curtailments
restricted urea production throughout the year.
– Sorfert – OCI project (Algeria – 1.2 MMT granulated urea; 1.45 MMT
ammonia), was initially expected in August 2011 but was delayed to early
2012. Shipments are scheduled to commence in April 2012.
– Qafco V (Qatar – 1.3 MMT granulated urea) was commissioned in late
December with ramp-up in Q1 2012 and full capacity expected by Q3 2012.
Qafco V’s two ammonia plants (0.8 MMT each) are to start production
in 2012.
• China’s impact in 2011:
– The country’s export policy underwent significant changes as the
government stepped up its efforts to curb urea exports. The lower tax
export window was reduced from seven to three months which, combined
with the introduction of a sliding-scale tariff system, resulted in urea
exports from China falling from 7 MMT in 2010 to approximately 3.6 MMT
in 2011.
– The world’s largest nitrogen fertilizer producer tightened its energy control
to cope with the country’s power deficit. Coupled with high coal prices,
strict limitations on energy consumption took approximately 1.4 MMT
and 2.6 MMT of ammonia and urea capacity offline respectively, according
to Fertecon.
– While China’s total nitrogen fertilizer capacity is expected to remain
unchanged over the next few years, it will nonetheless be significantly
more concentrated. By 2015, 80% of the country’s nitrogen output
is to come from about 250 companies, versus 394 in 2011, with the
appearance of 20 to 30 large nitrogen groups. If 4.6 MMT of capacity
is expected to come online, approximately 5 MMT of existing and outdated
capacity should be shut down.
• Age of equipment leads to relatively high maintenance costs and restricts
maximum efficiency improvements
• Transportation costs are relatively high at Novomoskovskiy Azot due
to location
• Import trade barriers exist in several target markets
• Gradual increase in gas and energy costs in Russia
• Falling/low natural gas prices increase relative competitiveness of previously
marginal and unprofitable producers (increase in competitive supply)
• New ammonia capacity in lower-cost gas regions (e.g. Middle East,
North Africa) may unfavourably alter the supply-demand balance in
the sector
• Impact of shale gas development on natural gas prices in the United States
and globally
Annual Report and Accounts 2011 EuroChem 37
Business review