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PhosAgro sees higher demand of fertilizers due to bumper harvests

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The impact of bumper harvests in depleting nutrient levels in soils should herald a rise in demand of fertilizers in the upcoming spring planting season, offering some support to prices too, said PhosAgro.

Andrey Guryev, chief executive at the Russia-based fertilizers group, downplayed the threat of a further slide in prices from levels which are broadly at their lowest since the world economic crisis.

"Looking at future price developments I think we are unlikely to see any further downside," he said.

Investors were already "witnessing the first signs of improvement in the urea market".

While proving cautious over "predicting any significant upside" in values, prices will be supported by the hangover from this year's strong harvests in necessitating the replenishment of soil nutrient levels.

"High yields of corn and soybeans, particularly in the US, and wheat, in Canada and Russia, resulted in higher soil depletion," he said.

"This, combined with increased affordability of fertilizers due to very low prices for all three major nutrients, should support demand for the upcoming spring season."

China reduces output

Mr Guryev also highlighted the tailwind to values of "dramatic changes" in supplies, with news on cuts coming onto the agenda – notably with reports of Chinese phosphate producers reducing output in an effort to defend a price flood of some $305-310 a tonne.

"Last week, for the first time ever, we saw an unprecedented release from Chinese phosphate fertilizer producers announcing further substantial cuts in production," ranging from 10-60%.

This was a sign of a shake-up in the industry being forced by lower margins.

"The average cash cost in the industry, for both the phosphate and nitrogen nutrients we produce, is well above current prices," he said.

"This suggests that the current low price environment should lead to a rationalisation in the industry, and gradual closure of non-efficient or less integrated and non-subsidised market players."

Pressure on Chinese margins

In the nitrogen sector in particular, Chinese fertilizer output margins have been pressured by, besides weak prices, growth in domestic coal prices of more than 30% over the last two months – coal being a major raw material for the production of nutrients such as ammonia and urea.

In the ammonia market, Chinese prices "recently fell below the cash costs of most producers that sell ammonia", Mr Guryev said.

Net profit up

The comments came as PhosAgro reported earnings up more than 50% to 48bn roubles ($748m) for the January-to-September period.

The company's revenues rose 4% to 147.6bn roubles ($2.16bn).

Earnings per share increased by 54% to 375 roubles ($5) from 244 roubles ($4) in the nine months to September in 2015.

However, analysts at VTB Capital said the October to December period this year was "not going to be easy" for PhoAgro, given renewed firmness in the rouble, which curtails the competitiveness of Russian exports.

By Tanya Ashreena

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