In response to UralChem’s accusation that OJSC Apatit (“Apatit”) is responsible for the production shutdown at OJSC Voskresensk Mineral Fertilizers (“VMU”), PhosAgro believes it is necessary to explain the true reasons that have caused this situation.
On 16 September 2013, VMU informed Apatit that it would not obtain any phosphate rock in October of this year and that it had halted production of mineral fertilizers.
In its statement, VMU wrote that the reason for the production shutdown was Apatit’s pricing policy, which “prevents VMU from reacting flexibly to changing market conditions, and given the current situation on the mineral fertilizer market, purchasing phosphate rock at the established price will lead to the bankruptcy of VMU.”
However, VMU pays less for phosphate rock from Apatit than any other customer anywhere in the world; the price is actually below Apatit’s own cash cost for production of phosphate rock. Furthermore, Uralchem continues to seek court rulings securing this very same price for the period 2014-2017.
Yet, even with such low raw materials prices, the management of Uralchem has decided to stop production at VMU because it is unable to compete with other producers, all of whom purchase phosphate rock at market prices. And this is despite the fact that Apatit, which has been supplying raw materials to VMU at well below market prices for five years, has in effect been subsidising the fertilizer producer (for a total of over USD 300 million) by providing it with preferential treatment. However, even with these exceptionally favourable conditions, the owners of Uralchem did not bother to upgrade or modernise the production lines at VMU, which were built in the 1930s. According to VMU’s own annual reports, capital expenditure at the plant between 2008 and 2012 amounted to just RUB 1.4 billion. Uralchem’s attempts to save money on VMU modernisations lowered its efficiency.
Uralchem cites Uralkali’s pricing policy as being more suitable in its statement, however, Uralchem fails to mention that it is in fact fighting recommendations by the Russian Federal Antimonopoly Service (FAS) that would make domestic phosphate pricing similar to the mechanism used for potash. Domestic potash prices have been determined using global market prices and minimum export prices for two years already. As a result, when global prices decline, Uralkali lowers potash prices for Russian mineral fertilizer producers. This is exactly what is happening with potash prices right now. This pricing mechanism, which provides for a balance between the interests of producers and consumers, is exactly what FAS has proposed for the domestic phosphate rock market as well.
On this basis, PhosAgro’s management views Uralchem’s position as merely an attempt to put unfair pressure on its supplier, on the arbitration court and on government bodies in order to gain even greater subsidies and preferential treatment from raw materials suppliers.