Market and product

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

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

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

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

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

'Challenging times'

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

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

Indeed, such "challenging times" have prompted productioncurtailments among many producers, including Morocco's OCP Group, which controlsthe world's largest phosphate rock reserves, which cut its capacity utilisationto some 50-60%.

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

Into the red?

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

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

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

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

"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.