eurochem-annual-report-2011

Over the next five years (2012-2016), EuroChem plans to invest over
USD 675m into the Phosphate segment to construct an NPK plant at
EuroChem-BMU and increase ore extraction and processing capacities
at Kovdorskiy GOK. Approximately 63% of this planned capex is attributed
as development capex and 37% as maintenance.
Key recent and ongoing investment projects
• Increase of sulphuric acid capacity at Phosphorit and EuroChem-BMU.
• Build NPK production at EuroChem-BMU to correspond to potash production
coming on stream at VolgaKaliy.
• Feed phosphates at Lifosa.
• Kazakhstan: two-phase project, starting with phosphate rock supply and
ending with construction of NPK/AN/LDAN production aimed at Central Asia
and North-Western China.
SWOT analysis
48%
of EBITDA contribution
to the Group
in 2011
Strengths Weaknesses
• Own supply of high P 2 O 5 content (37-38%) apatite accessible through
open-pit mining
• Phosphate fertilizer facilities located close to ports and their target markets
(Europe and Russia/CIS)
• EU-based Lifosa benefits from no import tariffs in Europe
• Absence of environmentally harmful substances in apatite (cadmium),
which is particularly important for exports to Europe
• Lifosa’s reputation as a high-quality producer allows for premium pricing
• By virtue of Kovdorskiy GOK’s geology, added benefit of iron ore as
co-product of apatite mining
Opportunities Threats
• Developing phosphate rock mining deposits in Kazakhstan to reach
raw material self-sufficiency
• Raise production at Kovdorskiy GOK by c. 10%
• Further efficiency improvements at EuroChem-BMU and Phosphorit
• Construction of phosphate and NPK fertilizer plant in Kazakhstan
• Integration of NPK production once potash is on stream will significantly
help increase scale and margins, especially at EuroChem-BMU
2011 key developments
• Global phosphate fertilizer consumption increased by 2.5%, from 39.7 MMT
(P 2 O 5 ) in 2010 to an estimated 40.7 MMT (P 2 O 5 ) in 2011. We currently
expect global consumption to grow by 3.2% to 42.1 MMT (P 2 O 5 ) in 2012.
• Low levels of phosphate fertilizer inventories coupled with strong demand
and encouraging farm economics throughout the better part of the year
supported prices. DAP (FOB Baltic) averaged USD 633/tonne compared
to USD 485/tonne and USD 328/tonne in 2010 and 2009, respectively.
• Taking advantage of favourable equity and fertilizer market conditions,
PhosAgro proceeded with its initial public offering in July.
• In China, a reduction in the length of the export window combined with
the introduction of a sliding-scale formula for duties (export duties increased
up to 17% for DAP and 30% for MAP) contained Chinese DAP/MAP exports
to 4.9 MMT in 2011 according to Chinese Customs. Also, no new phosphate
capacity additions were included in the country’s twelfth Five-Year Plan
(2011-2015).
• India, which accounts for approximately 6 MMT of the 14 MMT of global
DAP imports, announced its intention to purchase 7-8 MMT of phosphate
fertilizers from April 2011 through March 2012 from PhosChem, the leading
supplier of DAP in India (2 MMT) at USD 612/MT. In early September, as
DAP prices increased up to USD 677/tonne, the global phosphate market
effectively split into spot and contract markets.
• Despite significant capacity coming online in 2011 – Ma’aden in Saudi Arabia
(3 MMT of DAP) and a number of projects in China (0.8 MMT of incremental
MAP/DAP capacity), the phosphate market remained fairly tight. Ma’aden
appears to have acted as a deterrent to any additional capacity over the last
few years.
• Transportation costs for Kovdor apatite are relatively high for Lifosa and
EuroChem-BMU
• Relatively high maintenance costs and restrictions on maximum efficiency
improvements due to age of equipment
• Increased costs associated with depth of mine
• New capacity expansions can unfavourably alter the supply-demand
balance in the sector and/or compress the normally higher margins
enjoyed by integrated producers like EuroChem
Annual Report and Accounts 2011 EuroChem 41
Business review