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Russia's Phosagro will not renew deal to sell India fertiliser

11 July 2013

Russian fertiliser company Phosagro PHORq.L PHOR.MM has no plans to renew a contract to supply India, the world's largest phosphate consumer, because it is offering too low a price, a senior executive said.

Analysts estimate that Phosagro, the world's No.2 producer of phosphate fertilisers, supplied around 400,000 tonnes of dimmonium phosphate (DAP) to India under its 2012 contract.
India, seeking to boost rice crops to feed its growing population, traditionally sets a floor on prices of fertilisers such as DAP.

Last year Phosagro's revenue from India amounted to around 7.5 billion roubles ($230 million), down from 12 billion roubles in 2011.

The price offered by New Delhi is too low to resume deliveries, Deputy Chief Executive Andrei Guriev said in an interview. He cited spot fertiliser prices in India at around $485 per tonne at the beginning of July, compared with contracts signed not long ago for $515.

"India is a specific market where the buyers are strongly consolidated and fertiliser producers find themselves facing a monopsony (buyer's market)," he said in an interview.
The company plans to redirect those volumes to Russia's domestic market, which it sees as a priority, and also to Southeast Asia, Latin America, Africa and Europe, said Guriev, son of Phosagro's billionaire majority owner Andrey Guriev.

In May, rival Phoschem, which exports North American fertiliser for Mosaic Co MOS.N and Potash Corp of Saskatchewan POT.TO, agreed to sell 400,000 tonnes of DAP to India, but did not reveal the exact price.

Analysts say the contract would have been priced at below $500 per tonne and that Phosagro could have counted on being paid something similar. Previous contracts were at $580 per tonne.


The firm plans to increase shipments to Asia, in particular Thailand, Vietnam and Malaysia, to 600,000 tonnes in 2013, according to Guriev. The firm previously shipped only small volumes to Southeast Asia.

It is also interested in the amount of foreign investment pouring into African agriculture. Phosagro, which sold 247,400 tonnes of nitrogen, phosphorus and potassium (NPK) to Africa in 2012, plans to roughly double exports to the region this year, Guriev said.

Its fertiliser shipments to Europe could rise 40 percent to 600,000 tonnes, he added.

Phosphate prices have stabilised at around $465-$485 per tonne in the Black Sea on a free-on-board (FOB) basis and could rise in September depending on the state of global inventories and India's monsoon season, Guriev said.

In the short term, phosphate demand should outpace overall demand for fertilisers, while Southeast Asia, South Asia and South America are likely to be the strongest growth markets in 2014, he said.

Russian fertiliser companies, whose profits were hit by adverse weather conditions for crops in the first part of 2013, expect the market to improve in general, with demand in South America particularly strong.

According to Phosagro estimates, the global fertiliser market is growing at around 3 percent per year, while in Russia production could reach over 6 percent growth annually.
Shares in Phosagro, which have risen around 50 percent since the start of 2012, were 1.4 percent up on the day.