Chemists put forward counterclaims to freeze fertilizer prices

by time news

The largest Russian fertilizer producers are discussing with the government the conditions for freezing prices for their products for agricultural producers until June 2022. This was announced by Phosagro CEO, head of the Russian Fertilizer Producers Association (RAPU) Andrey Guryev on November 19 following a meeting with Deputy Prime Minister Yuri Borisov in Cherepovets.

“Apart from fixing prices, we are talking about guaranteeing the volume of supplies. We need a guarantee of counter purchases, ”said Guryev (quoted by Interfax). In his opinion, in the event of a freeze in prices, agricultural producers may not want to buy significant amounts of fertilizers until the spring field work, that is, until March-April.

The representative of RAPU confirmed to Vedomosti that the largest companies in the industry plan to extend the regime of containment of prices for products until May 31 inclusive, which is in effect from July to December 31. According to him, such a decision was made following the results of the meeting held on Friday, chaired by Borisov. Vedomosti also sent inquiries to Akron and Eurochem, as well as Uralchem ​​and Uralkali (not part of RAPU).

Borisov explained that during the meeting “mechanisms for hedging risks in the event of price volatility in the world fertilizer market were discussed” (his words were conveyed to Vedomosti by a representative of the Deputy Prime Minister).

According to Interfax, the producers of mineral fertilizers are planning to conclude agreements with the Ministry of Industry and Trade, the Ministry of Agriculture and the regions of the Russian Federation, where obligations for supplies to the domestic market will be fixed. At the same time, the trade policies of the manufacturing companies will fix prices on the basis of factories and the volumes of supplies to each region, the Ministry of Agriculture will monitor their implementation.

“Companies-grain exporters are ready to support agricultural producers by financing the purchase of the necessary volumes of fertilizers as part of the advance payment for seasonal field work,” Eduard Zernin, chairman of the Board of the Union of Grain Exporters, told Vedomosti. He also added that the association approves the efforts of domestic producers aimed at saturating the Russian market with mineral fertilizers, first of all.

In early November 2021, all-time highs in fertilizer prices were recorded in the global market. As Vedomosti wrote, on November 4, the cost of urea on FOB Black Sea delivery terms reached $ 795 / ton, urea-ammonia mixture – $ 633 / ton, carbamide with FOB basis Middle East – $ 900 / ton, FOB Yuzhny (Ukraine) – $ 825 / ton … Prices are growing against the backdrop of increased demand for food; in the summer-autumn of 2021, growth accelerated due to expensive gas, which is used as a raw material for the production of nitrogen fertilizers and the shutdown of enterprises for their production in the EU against the backdrop of the energy crisis. Following world prices, the cost of fertilizers in Russia also grew: according to the SPIMEX exchange, various types of fertilizers rose by 30–70% from January to July 2021, and from July 2020 by 1.6–2 times.

Earlier, Russian President Vladimir Putin announced the need to work out measures to curb the rise in food prices in connection with the situation on the energy market in Europe. The head of state instructed the government and the prime minister by November 1 to develop measures to neutralize the negative consequences of global inflation in the country, including on the nitrogen fertilizer market. After the instructions of the president, several meetings were held in the government at which the pricing of fertilizers for 2022 was discussed, a source close to fertilizer producers told Vedomosti.

In early November, the government decided to introduce temporary restrictions on the export of nitrogen and nitrogen-containing fertilizers to the Russian Federation from December 1 to May 31. For nitrogen fertilizers, restrictions will be set at the level of no more than 5.9 million tons, and for complex fertilizers – no more than 5.35 million tons. Quotas should be distributed between the companies by November 25, 2021.

The inclusion of guarantees of purchase volumes in the agreement on the extension of special prices is logical, since it allows manufacturers to plan production and sales activities more efficiently, Mikhail Burmistrov, general director of Infoline-Analytics, told Vedomosti. In previous periods, the planned volumes of purchases of fertilizers by Russian farmers were systematically underestimated, and during the year there was at least one upward revaluation, the analyst says. In this regard, it is important to develop approaches to the development of a procurement plan that would balance the interests of manufacturers and buyers.

According to Sergei Grishunin, Managing Director of the NRA Rating Service, demand for fertilizers in Russia peaks in the second quarter, before the start of the sowing campaign, while demand in the first quarter is “traditionally low”. Against the backdrop of export restrictions, fertilizer producers have a risk that some of their products will not be demanded by the domestic market.

A guarantee for chemical companies could be the purchase of potash and phosphate fertilizers in the state reserve, Grishunin said. But nitrogen fertilizers need to be stored carefully, he says, recalling the August 2020 bombings of an ammonium nitrate storage facility in Beirut (more than 200 people died, about 300,000 were left homeless).

A Vedomosti source in the agricultural company noted that the overwhelming majority of agricultural producers do not have their own warehouses for storing ammonium nitrate and urea. “They store the contracted volumes in certified warehouses of regional distributors,” he said. “Therefore, the task of fertilizer producers is only to ensure sufficient physical volumes in these warehouses.”

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