Indian dynamics bode well for phosphates revival

PhosAgro revealed reasons for hope for a recovery in phosphate markets from the "challenging times" of last year, which left the Russia-based fertilizer group swallowing a 65% slump in earnings.

PhosAgro highlighted the recovery in prices of agricultural commodities such as corn, up more than 20% so far this year, a factor many see as likely to encourage plantings of what is particularly nutrient-hungry crop.

Furthermore, market conditions in India, the biggest phosphate importer, appear more supportive, with a recent squeeze on purchases reducing the country's stocks to "very low" levels.

With the rupee rebounding 13% against the dollar since August India will, on "conservative expectations", raise imports by 2m tonnes to "at least 5-5.5m tonnes", the group said.

These factors "will bring global fertilizer demand growth back in line with the normal annual rate of around 2%," from levels depressed last year by uncertainty following the beak-up in July of the Belarusian Potash Company cartel, which controlled more than 40% of world potash trade.

'Challenging times'

PhosAgro signalled that it was particularly well placed to benefit given its relatively low cost levels, with rising costs of raw materials "driving up cash costs of most significant players" in phosphates.

Last year as a whole, phosphate fertilizer prices "remained below cast cost levels for marginal producers", and in the October-to-December period were "below the average cash cost for the industry".

Indeed, such "challenging times" have prompted production curtailments among many producers, including Morocco's OCP Group, which controls the world's largest phosphate rock reserves, which cut its capacity utilisation to some 50-60%.

Chinese capacity utilisation was 50-70%, according to industry estimates.

Into the red?

PhosAgro, which is largely self-sufficient in raw materials for making phosphate products, said that its production of fertilizers, including the combined NPK nutrient, had risen by 9% last year, with sales rising 11% by volume.

However, with prices tumbling after the BPC break-up, the group's revenues eased 0.7% for the full year to 104.6bn roubles ($3.28bn).

Lower margins, thanks to the price cuts, and increased costs of natural gas and administrative expenses, depressed earnings by 65% to 8.57bn roubles ($269m).

Although the group failed to break-out results for the October-to-December period, the data imply a loss of 518m roubles, compared with a profit of 5.39bn roubles a year before, on revenues down 10.6% at 23.3bn roubles.

"This has been a challenging year for the fertilizer industry," Andrey Guryev, the PhosAgro chief executive, said.

PhosAgro depositary receipts, a proxy for shares, stood 0.5% higher at $11.65 in morning deals in London.

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