Russian Nitrogen g Fertilizer Market
TFI’s Outlook and Technology Conference Charleston South Carolina, Charleston, Carolina U.S.A. USA 11-13 November, 2008 LONDON | RALEIGH | WASHINGTON | BEIJING 31 Mount Pleasant, London WC1X 0AD UK Tel +44 20 7903 2132 Fax +44 20 7833 4973 www.crugroup.com
Presentation Overview ¾ Country Profile: Natural Gas Reserves ¾ Nitrogen Industry: Overview and Recent Developments ¾ Agriculture ¾ Fertilizer Consumption
Breakdown by Regions and Products Hi t History and dF Forecastt Agricultural Equipment for Fertilizer Application
¾ Domestic Fertilizer Trading ¾ Key Domestic Players in Nitrogen Fertilizer Segment ¾ Overview of Russian Biofuel: Market of Future ¾ Domestic Market Overview
Drivers for Growth Threats for Stagnation
¾ Conclusion 2
Country Profile: Natural Gas Reserves (I) Russia’s Position in Global Ranking by Gas Reserves and Production, 2006
Production
Reserves Russia
(26%)
Russia
Iran
USA
Qatar
Canada
S di Arabia Saudi A bi
I Iran
U.A.E.
Norway
USA
Algeria
Nigeria
UK
Algeria
Indonesia
Venezuela
Saudi Arabia
Iraq
Turkmenistan
Kazakhstan
Netherlands
Other (>35 countries)
Other (>35 countries) 0
10
20
30
40
Trillion cubic meters Source: BP (Reserves: Proved Reserves at end of 2006)
50
(21%)
0
250 500 750 1000 Billion cubic meters
Country Profile: Natural Gas Reserves (II) Structure of Gas Reserves in Russia by Ownership in 2006, % and trillion cubic meters
Undistributed/ Non-licensed Fund 16% Rosneft Lukoil Novatek Northgas Surgutneftegaz TNK-BP Itera, etc.
7.8 Independent Producers 21%
10.2
29.85
Gazprom (controlled reserves) 63%
Total Volume of Gas Reserves in Russia: 48 trillion t illi cubic bi meters t
Source: Gazprom (Reserves as per 31.12.2006)
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Russian Nitrogen Industry: Overview (I) Nitrogen industry of Russia is an export oriented industry: it is the 1st or 2nd leading exporter in the world for all straight nitrogen products products. Domestic market is rather a strategic or balancing profit issue.
AMMONIA
Number of Plants
UREA
AN
UAN
17 plants
12 plants
11 plants
4 plants
Share in World’s Production
8%
4%
21%
7%
Share in World’s Exports
19%
13%
39%
22%
Rank in World’s Exports
2
2
1
1 5
Russian Nitrogen Industry: Overview (II) Original location of plants was determined by the idea to meet the needs of domestic market: yet for the past decade international market situation proved to be more attractive for the Russian producers to deliver up to 80% of their fertilizers to foreign customers.
Russia Azot Berezniki Cherepovets Dzerzhinsk Kirovo-Chepetsk Acron Novgorod Minudobreniya Perm Voskresensk Mendeleevsk A t Sh Azot Shchekino h ki Novomoskovsk Nefteorgsintez Salavat Dorogobuzh Togliattiazot Meleuz Kuybyshevazot Rossosh
Ukraine Azot Nevinnomyssk
Azot Kemerovo
Kazakhstan Angarsk Petro Petro-Chemical Chemical Co.
Mongolia
China
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Russian Nitrogen Industry: Recent Developments (I)
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Russian Nitrogen Industry: Recent Developments (II) Major Events Inside the Industry and General Impact of Other Related Domestic Factors
New Holding Agroprodmir
Marketing structure change: FCA/FOB to CFR/CIF/DAF sales
Management focus on longterm strategies and IPOs ideas
2004-2006 2004 2006
Development and expansion of domestic distribution networks
New gas trading “5+5 system” launched
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Russian Nitrogen Industry: Recent Developments (III) New projects announcements driven by increasing margins from international sales.
New export tariffs Quota restrictions to follow (?)
Note: VSGC = Vostochno-Sibirskaya Gasochemical Company
2007-2008 2007 2008
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Russian Agriculture: Global Indicators
1 in the global ranking of barley, sunflower seed, rye, and oats producers in the world. 2 among th the world ld top t potato t t producers d after ft Chi China. 4 among the world’s largest wheat producers after China, India, and the USA. One of the world leaders in sugar beets, buckwheat, carrots and cabbages production. Among the top 10 leading exporters of wheat in the world.
World WHEAT Producers' Ranking: Top 10 Countries by Output in 2005 (mln. t)
C China
96.3
India
72.0
USA
1.1
Germany
23.6
UK
40
60
80
Source: FAO (2005, latest year available)
100
1.3
Australia
Australia
20
Poland
10.4
9.0
24.1
0
1.7
12 1.2
Australia
mln t
USA
11.7
Finland
Turkey
21.0
3.3
90 9.0
25.5
Turkey
4.6
Ukraine
Canada
21.6
Russia Canada
12.1
France
36 9 36.9
Pakistan
15.8
Germany
47.6
France
Russia Canada
57.1
Russia
World OATS Producers' Ranking: Top 10 Countries by Output in 2005 (mln. t)
World BARLEY Producers' Ranking: Top 10 Countries by Output in 2005 (mln. t)
Germany
6.6 5.5
USA
4.6
Spain
4.4 0
4
mln t 8
12
16
1.0
China
0.8
Belarus
0.8
Sweden
0.7 0
1
mln t 2
3
4
5
10
Russian Agriculture: Domestic Indicators
The share of rural p population p is 27% of total country’s y population p p of 143 million people. p p
The largest part – slightly less than 60% - of total area under agricultural crops in Russia in 2007 was used for the production of grains (wheat, barley, oats, rye, and others). Oil crops accounted for about 10%.
Structure of Grains Output by Crop Types in Russia in 2007 ((in farms of all types; yp p percentage g of the total g gross harvest))
Rye 5%
Groats 2%
Grain legumes 2%
Maize for grain 5% Oats 7%
Barley 19%
Source: Federal State Statistics Service of Russia, 2008
Wheat 60%
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Russian Fertilizer (N+P+K) Consumption in Agriculture: Breakdown by Regions (FD = Federal Districts)
Central FD (33%)
Volga FD (28%) Southern FD (27%)
Far-Eastern FD (1%)
Siberian FD (4%)
88%
Source: Rosstat (2006), Azotecon, BSC
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Russian Fertilizer Deliveries to Agriculture: Breakdown by Products (share estimates in nutrient N value), 2007
AS 2%
MAP 5%
DAP 1%
Other 7%
Urea 8%
AN 77%
The bulk of N consumed in Russian agriculture is Ammonium Nitrate. AN is the most popular nitrogen fertilizer among Russian farmers and the product is forecast to retain its dominant position in the Russian agriculture in the future. Source: BSC estimates, Azotecon // Note: data excludes the amount of fertilizer consumed in industrial sector
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Russian Fertilizer Consumption: History and Forecast kg/ha nutrients 35
Use of Mineral Fertilizers in Agriculture, g , kg/ha
+74% 74% 33
28 21
19
19
2000
2001
23
21
21
2002
2003
27
25
14 7 0 2004
2005
2006
mln t nutrients
+12% CAGR
3.5
Use of Mineral Fertilizers in Agriculture, mln t nutrients
2007
3
+2.5% CAGR
25 2.5 2 1.5
1.4
1.3
2000
2001
1.5
1.3
1.4
1.4
1.5
2003
2004
2005
2006
1.7
2.0
22 2.2
2.5
2.7
3.0
1 0.5 0 2002
2007
2008
2009
2010
2011
2012
Government’s Target Growth* *Acc. to the State Program for the Development of Agribusiness and Regulation off Agricultural A i lt l Goods’, G d ’ Raw R Materials’ M t i l ’ and d Food’s F d’ Markets M k t for f 2008-2012 2008 2012 Source: Federal State Statistics Service of Russia, Russian Ministry of Agriculture
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Russian Fertilizer Consumption: Agricultural Equipment for Fertilizer Application '000 units 30
28
- 35% 24
25
Scattering/Spreading machines for solid mineral fertilizers
22 20
20
19
18
18 Machines M hi for f organic i fertilizer application (solid)
15 15
13 11
10
9
8
7
10 6
9 5
5
5
Machines for organic fertilizer application (liquid)
0 2002
2003
2004
2005
2006
2007
While old agricultural equipment wears down and fails to function, it is being replaced by the new modern machines for fertilizer application, which are more efficient and long-lasting. Source: Federal State Statistics Service of Russia
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Domestic Fertilizer Trading: 2006 - 2008 Fertilizer Exchange trading in Russia was recently introduced for the following reasons: 9 9 9 9
to make fertilizer market more transparent; to develop competitiveness of domestic fertilizer sales; to diversify sourcing opportunities for export deliveries; to provide alternative options for supply of raw materials . Moscow Stock Exchange (MSE) Universal Mercantile Exchange “UMEX” in i St. St Petersburg P t b
Two platforms for fertilizer exchange trading in Russia
Fertilizer producers involved in fertilizer trading as suppliers of products: ¾ ¾ ¾ ¾ ¾ ¾ ¾ ¾
Balakovskiye Mineral Fertilizers, Balakovo Ammophos Cherepovets Ammophos, Azot, Cherepovets Silvinit Uralkali Kuybyshevazot Rossosh Meleuz
Range of fertilizers includes AN, NPK, DAP, MAP, NP, MCP, apatite concentrate, MOP, urea phosphoric acid, urea, acid etc etc. The products are offered as bulk bulk, in bags or big bags bags.
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Key Domestic Players in Nitrogen Fertilizer Segment Domestic distribution
Product Portfolio (N)
Fertilizer sales to domestic market in 2007
% of fertilizer sales to Russia in Company’s Company s total fertilizer sales
“EuroChem-Agronetwork” includes 23 distributing centres in Russia
AN, CAN, Urea, UAN, MAP, DAP, NPK, NP, NK
> One million tonnes
15% in total fertilizer sales
Established in 2005 “Agronova” network includes 20 distributing centres in Russia
AN, Urea, UAN, NPK
0.8 million tonnes
22% in total fertilizer sales
One of the new holdings in Russia: two N plants Kirovo-Chepetsk and Azot Berezniki
Sales via the trading house “Rosagrotrade”
Sales via own agrochemical centres, representatives or dealers
AN, SAN, CAN, Urea, NPK
AN, NPK
AN, Urea, AS, UAN
0.9 million tonnes
0.52 million tonnes
0.5 million tonnes
28% in total fertilizer sales
30% in total fertilizer sales
44% in N fertilizer sales of KUAZ
Company
EuroChem
Acron
Uralchem
Rossosh
KUAZ
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Overview of Russian Biofuel: Market of Future Russian Biofuels Association suggests the development of Russian biofuels’ market in two stages: (1) The development of bioethanol for export (2) The development of domestic consumption of bioethanol
The targeted production growth of rapeseed (one of the bio-crops) in Russia by 2012 is a five-fold increase from the current level. Rapeseed R d Production P d ti in i Russia R i (gross harvest, mln tonnes)
mln t
3.0
+400% 400%
30 3.0
2.18 2.0
1.68 1.30
+200%
0.96
1.0 0.2
0.2
0.2
0.1
2000
2001
2002
2003
03 0.3
03 0.3
2004
2005
0.5
0.6
2006
2007
0.0 2008
2009
2010
2011
2012
Government’s Target g Growth* Source: Federal State Statistics Service of Russia, Russian Ministry of Agriculture
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Russian Domestic Market: Drivers for Growth Strategies focused on domestic market development Expansion of distribution networks
FERTILIZER PRODUCERS
Decline of international prices Anti-dumping measures’ tightening Pressure of low-cost nitrogen producers
INTERNATIONAL MARKET
GOVERNMENT
National priority projects Federal ede a target ta get programs p og a s Financial, banking system Export tariffs and quotas
Involuntary diversion of some of the traditionally exporting products to domestic consumers.
INDUSTRIAL SEGMENT
Biofuel crops segment development Increasing demand for technical purposes
FOREIGN INVESTMENTS
Foreign investments in Russian agribusinesses developing food processing industry
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Russian Domestic Market: Threats for Stagnation 9L ft i i l iin ffertilizer tili li ti Leftover principle application approach in Russian agricultural sector 9 Decline of working age population in rural areas 9 Underdeveloped storage infrastructure for fertilizers
FARMING SECTOR
9Rising production costs 9High 9Hi h logistics l i i costs
PRICES
GOVERNMENT
9Inefficiency of governmental support y 9Lack of systematic implementation in governmental programs at a regional level
20
Conclusion 9 Domestic market development is of high strategic value for most fertilizer manufacturers 9In the short-to-medium term the export share will retain its dominance in Russian nitrogen industry: the country has been and will remain the major player and exporter in the global international nitrogen trade 9 However, domestic market leaves vast opportunities with a l large potential t ti l development d l t for f l local l producers d t utilize to tili th i their nitrogen products 9 As hedging from more pressure in the global trade at the bottom of the cycle the development of the domestic market might be a solution for surplus of products for Russian manufacturers 21
Thank You!
Marina Simonova S
[email protected]
British Sulphur Consultants
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