Russia halts the supply of ammonium nitrate to Ukraine

Photo: Reuters

In August the import of ammonium nitrate from Russia to Ukraine was suspended. In fact, all imports of the product stopped as of last month since no other company supplied nitrate fertilizers to Ukraine, said Director of the Infoindustriya information company Dmytro Hordiychuk. “Not a single ton of ammonium nitrate was imported from Russia. Back in July the deliveries were significantly scaled down by Russian companies –down to 750 t,” says the expert. Even in June, the amount of imports was much higher: Hordiychuk says Ukraine imported 4,200 t of the product.

Duty

Reduction and later cessation of deliveries were confirmed to Capital by the major supplier of ammonium nitrate to Ukraine – Agrocenter – EuroChem. Director Yevhen Filonov said nitrate fertilizer manufactured by the Russian company EuroChem has not been supplied to Ukraine since the beginning of June when the Ukrainian government introduced an import duty on the commodity. As a reminder, for EuroChem the duty was set at the rate of 36.3%, the highest duty on the import of ammonium nitrate to Ukraine, for a period of five years. “This is actually a protectionist duty. That is why EuroChem does not supply nitrate fertilizer to Ukraine,” he explains. The lowest duty was set for Dorogobuzh– 20.51%. For other suppliers, the duty is the same as for EuroChem.

Other reasons

Director of NIITEKHIM (Cherkasy State Research Institute for Technical and Economic Information in the Chemical Industry) Tamara Kovenya assumed that the introduction of duties by Ukraine may not be the only reason for the reduction of imports of Russian ammonium nitrate. “Due to the dramatic devaluation of the hryvnia, the cost of complex fertilizers increased 40%. Ammonium nitrate also became quite expensive,” said the expert. She believes there are other risk factors that have forced Russia to cut off supplies. “New political rules of trade between Kyiv and Moscow could bring imports to a standstill. For example, Russian banks delay payments for delivery,” says Kovenya. She did not rule out the possibility that Russian companies would still deliver nitrate fertilizer to Ukraine when the risks of currency fluctuations will decrease.

Going to the government

The current trend is not yet critical for farmers, assured Chairman of the Agrarian Union of Ukraine Hennadiy Novikov. «For now farmers buy complex fertilizers for sowing winter crops. The need for nitrate fertilizer will arise no sooner than January,” he explains. By that time, Ukrainian chemical plants should produce enough nitrate fertilizer to reduce the risk of its shortage, Novikov hopes. “Over the next 10 – 12 days we will draft a proposal for the government to discuss the issue of provision of fertilizers for villagers in time for the spring sowing campaign,” he says. “In particular, we will propose to the Ministry of Agrarian Policy the procedure of procurement of fertilizers from chemists by the Agrarian Fund, so that later farmers can purchase them for sowing needs”.

Chance of a shortage

Farmers’ dreams may not come true. Currently, of the four Ukrainian producers of ammonium nitrate only two are still operating, namely, Azot in Cherkasy and Rivneazot in Rivne. Stirol in Horlivka and the Severodonetsk Association Azot located in the ATO zone were shut down in May 2014 and will not likely be able to produce ammonium nitrate for the domestic market until next year. The capacity of the operating companies allows for the production of approximately 140,000 t of ammonium nitrate per month. By spring, farmers will need approximately 1.2 mn t of nitrate fertilizer. Therefore, in case of a full load in the July–January period, the plants will be able to produce close to 1 mn t of fertilizer. This means that by the beginning of the year there will be a shortage of no less than 200,000 t of the product, exactly the amount that was traditionally imported to Ukraine by Russian chemical plants.

The shortage of nitrate fertilizer will be even higher if chemical plants are cut off from gas supplies in winter. The cause for concern was the statement made by Deputy Chair of Naftogaz Oleksandr Todiychuk last week. He said that chemical plants are the first in line to be cut off from gas in winter. However, that would happen only if the winter is too cold and the country needs additional amounts of gas. Now the fuel shortage is estimated at 5 – 6 bn cu m. “In August, the entire industry and the FECs switched to a schedule of limited gas consumption. Per se the supplies have been reduced by 30% and for households – by 10%. This was done to forestall a shortage of gas during the heating season,” said Todiychuk in a comment for Capital. He also said as part of the government commission Naftogaz of Ukraine developed different scenarios in case of gas shortage and cutting off gas supplies to chemical companies and other industrial facilities for 1 – 3 months. “Production of fertilizers is not the same as making products that are essential for human consumption, such as bread for example. I think that when we will be forced to choose where we can economize, there will be no objections – all businesses will understand. Moreover, we have already discussed this issue with their representatives”.

Nowhere to buy

The lack of nitrate fertilizer will result in a serious problem for farmers, believes Novikov. “If farmers do not have enough nitrate fertilizers, this will have a negative impact on the future harvest. Ukraine cannot have this because grain export is the main source of currency earnings in the country,” he said.

Hordiychuk believes that the shortage of such popular fertilizers will be very difficult to cover. “It will be impossible to import the fertilizer from Russia. In fact, there is nowhere else to purchase them, as the use of nitrate fertilizers is widely popular only in the CIS,” says the expert. In Europe, the U.S. and in other developed countries nitrate fertilizer is not used or produced on such a scale. It is considered to be a fertilizer that is poor in nitrogen (34.4%). Developed countries prefer carbamide (46%).