Dmytro Firtash’ company began selling Chinese carbamide to the EU

Photo: Ukrainian photo

An extraordinary event happened on the fertilizer market: Dmytro Firtash’ trading companies switched to selling Chinese carbamide, said President of the Infoindustriya Information Company Dmytro Hordiychuk. “The Swiss branch of NF Trading (owned by Firtash), which sells Ukrainian carbamide, decided not to wait for the liberation and reconstruction of its plants and factories in the eastern oblasts (Stirol in Horlivka and Azot in Severodonetsk) and began selling carbamide from China to the EU,” said the expert. He added that the first 40,000 t batch of granulated carbamide of Chinese production will be delivered to Italy within a short period of time.

Exporter turns importer

Hordiychuk assumes that NF Trading’s dramatic turnaround in dealing with fertilizers may soon transform Ukraine from an exporter of carbamide into an importer. “Even five years ago Ukraine exported up to 3.7 mn t of carbamide per year. The fertilizer was the main source of profit for domestic chemical companies. Now, Ukraine has a chance to become an importer of this valuable commodity, despite the fact that the Ukrainian domestic market still consumes a maximum of 600,000–700,000 t of this commodity,” says the analyst.

Taking into account that the average price of fertilizer is US $350/t, the foreign trade of carbamide brought Ukraine at least US $1.2 bn in earnings every year. The lion's share of the profits from exports was secured by plants that Firtash controls in the east of the country, as well as the state-owned Odesa Port Plant. Firtash’ only operational producer of carbamide is the Azot in Cherkasy, which has capacities sufficient to produce approximately 700,000 t of carbamide per year. But this is close to US $230 mn per year, which differs from revenues earned from the sale of fertilizers.

Frustration of plans

Carbamide was the second nitrogen product, the export of which collapsed due to the global financial crisis and the hostilities in eastern Ukraine. Ammonia was the first commodity to experience the impact of the events. In the most successful years, Ukraine delivered 2–2.5 mn t of this commodity to foreign markets, which was the pride and joy of Ukrainian chemical companies. In terms of the current market environment, ammonia can bring its producers at least US $1.3 bn a year. But with the forced shutdown of the eastern plants Firtash’ traders lost such a profitable source of earnings.

Meanwhile, Firtash decided to give up trading ammonia back in 2010, as he said in one of his interviews. He believed that Ukrainian ammonia could not compete with products from Russia and the Middle East due to its higher production cost. At the time, Firtash also said that his nitrogen plants would stop trading ammonia and would recycle it into other nitrogen fertilizers: carbamide, ammonium nitrate, CAM, etc. Firtash even planned to install new capacities for the production of ammonium nitrate at Stirol, expand its output at Rivneazot and even managed to increase its production at the Azot plant in Cherkasy. Now, Rivneazot and the Azot plant in Cherkasy have the capacity to fully cover Ukraine’s demand for this fertilizer. But, as we can see, the crisis and the war in the east have undermined further plans for the processing of ammonia.

No gas – no carbamide

Firtash’ companies stopped counting on carbamide not only because its plants in the east of the country are idle. The company is also uncertain about gas supplies to Ukraine. While Firtash’ plants are able to produce ammonium nitrate from ammonia manufactured at the companies’ own factory in Rossoshansk in Russia, the production of carbamide requires imported gas. Usually every October–December Ostchem or Firtash himself announced the signing of contracts for the supply of natural gas for the following year and even mentioned the volumes of future supplies.

In the meantime, Firtash’ company reported other information – there will be no new purchases of gas, said Managing Director of Group DF Borys Krasnyanskiy in a recent interview. He insists that, for the time being, Firtash’ plants will manage to operate with the amounts of gas available in the Ukrtransgaz’ underground reservoirs. Based on Capital’s calculations there is at least 2 bn cubic m of gas. Such an amount is more than enough for a year of uninterrupted operation of Azot in Cherkassy and Rivneazot, unless Ostchem decides to resume operation of Azot in Severodonetsk or Stirol. But, judging by the statements, the company has no intentions of doing so.

Chinese finished us off

After the shutdown of Stirol and Azot in Severodonetsk, it became clear that Firtash’ traders are losing their global market share, and, therefore, revenues. Chinese and Iranian carbamide brought more troubles for NF Trading, as they literally forced their way through to its main customers, pushing aside producers from Eastern Europe. Over nine months in 2014, exports of Chinese carbamide grew on the world market by 46% to 8.07 mn t, according to Hordiychuk’s estimates.

For a long time, the sale of Iranian products has been limited by trade sanctions imposed by the U.S. and other countries, but this year the country has successfully entered the market of fertilizers. In order to recover the positions that it lost, Iran started offering carbamide even at lower prices than China. This literally took the wind out of the sails of Ukrainian chemical companies, which lost interest in rivalry with such players in India – the largest customer in the world for fertilizers.

What comes next?

Consequently, over the past few years Ukraine has lost several important markets for its ammonia and carbamide – the U.S., India, Turkey and Brazil. The supply to the EU is also undecided. It is possible that by selling Chinese fertilizers in the Eurozone, NF Trading is building up business in this market until better times, which one day will come. Industry experts believe that trading Ukrainian ammonia and carbamide will be irrelevant for Firtash’ companies for some time. Firtash will be able to make money on fertilizers in the foreseeable future only by selling ammonium nitrate and only on the domestic market. “The Odesa Port Plant will export ammonia and DnirpoAzot will sell carbamide. On foreign markets Ostchem plants will be able to find buyers only for small amounts (less than 65,000 t per month) of carbamide produced by Azot in Cherkasy, but those are far from the trade volumes that the company enjoyed a year ago,” says Hordiychuk.