Russian Fertilizers Feeding the World?
Global Agrochemical Export Market | Russia's Market Share | Russia's Challenges
Dear BWR Subscribers,
“Barbershop Whispers….Russia” begins with “My Takeaways” on the main topic, followed by the main topic discussion. The last two sections of “Barbershop Whispers…Russia” are “Follow-ups” regarding previous publications and “Quick Bites” briefly addressing emerging events.
In last week's BWR, I discussed Russia’s presidential plebiscite results - Putin “won 87%” of the “vote” I also included an expanded Quick Bites piece on the Crocus Center terrorist attack in Moscow.
In this week’s BWR, I will discuss the global agrochemical world and Russia’s shifting export markets in this sector. How are Russian fertilizer companies adapting to the changing business environment created by Putin’s war on Ukraine?
Takeaways:
MARKET POSITION: Russia’s fertilizer market position is strengthening and growing. Despite challenges with G7+ support services, e.g., banking, transport, etc., resulting from sanctions, Russian agrochemical companies are creating new distribution channels and value chains.
SHIFTING MARKETS: Russian fertilizer companies are gaining market share in the global South - particularly in India, China, and Latin America, their fastest-growing markets.
NEW MARKET PLAYERS: Adventurous and newly established commodities traders, regional international banks, and other service providers are filling the vacuum as traditional global players leave the Russian commodities market. These are unprecedented times of chaos in which fortunes and legends are made and lost. It is The World for Sale.
Market Position
Global fertilizer exports in 2020 were 224 million metric tonnes (MMT), with an export value of $115B. This number includes 100 MMT of intermediates such as ammonia, sulfur, and phosphate rock. The value of this export market in 2022 grew to $133B. Russia and Belarus represented 18% of the nitrogen, phosphate, and potash export trade. China had the second largest export share, with 12%, followed by Canada (10%) and the US (7%). According to the US Department of Agriculture, Russia accounted for 16% of urea (nitrogen source) and 12% of phosphate exports. Russia and Belarus combined provided 40% of global potash exports.
Shifting Export Markets
In 2022, Russia exported $18.7B in fertilizer products to Brazil, India, the US, and China. These are the largest fertilizer importers in the world. Russia’s fertilizer export markets have been shifting and climbing dramatically from “unfriendly” to “friendly” countries since Russia’s second invasion of Ukraine. Friendly is defined as those who do not sanction or follow sanctions against Russia. For example, Russia’s exports to Brazil, a friendly country, increased from 18% in 2022 to 24.5% in 2023.
At the same time, exports to India rose from 5.1% in 2022 to 20.1% in 2023, and that of China climbed from 8.5% in 2022 to 41.3% in 2023. It should be noted that the US was, and still is, a significant destination for Russian and Belarusian fertilizer, particularly potash. US imports of Russian fertilizers, primarily potash, rose by 19.7% in 2023. The chart below illustrates the trade value percentage for Russian fertilizer export markets in 2022.
In the first nine months of 2023, Russia exported 25.3 MMT of fertilizer, with increases of 9.7% and 8.6% in potash and urea exports, respectively. Recently, in a Russian state television interview, Denis Manturov, Russian Minister of Trade and Industry, stated.
“In 2024, Russian agrochemical manufacturers will produce around 60 MMT of fertilizers, and 35MMT will be for export.”
In a separate interview, Andrei Guryev, head of the Russian Fertilizers Producers Association, stated:
"New priority export destinations for Russian fertilizer producers are the countries of the global South, where three-quarters of all exports are already being delivered. The largest markets at the moment are India and Brazil,"
Russian fertilizer exporters are joining associations, such as the Arab Fertilizer Association, based in Saudi Arabia to expand their markets. The Middle East region is a significant producer and trader of specific types of fertilizer, such as triple superphosphate and diammonium phosphate.
Challenges
Finance and Payments
While Russian fertilizers are generally exempt from sanctions, the EU has placed tariffs on them from time to time. Nevertheless, as was the case with the now abandoned Black Sea Grain Initiative in which Russian grain exporters were exempt (and still are) from sanctions, their ability to access G7+ service trade providers, e.g., global institutional banks, insurance companies, etc. can restrict their activities due to concerns over reputational risk and legal interpretations of sanctions. Some countries have tried to remedy this problem by explicitly and quietly asking service providers to service these Russian companies. For example, the US Treasury asked JP Morgan and Citi to provide services to “strategically important” Russian companies, and this continues today.
Transportation
Russia exports fertilizers primarily from three regions: the Baltic Sea, the Black Sea, and the North Sea. More than 80% of the exports are attributed to the Baltic Sea ports, which are more than 12K nautical miles from China, one of Russia’s largest growing markets.
Russia is shifting more use of rail and Russian ports to deliver products, and Belarus is piggybacking on Russia’s ability to make these deliveries since exports from Lithuania are no longer an option.
Traders and Intermediators
Global traders like Cargill will have substantially reduced their presence in Russia. As these global traders leave the market, many newly established and well-funded traders are replacing them and filling the vacuum. They are creating new value chains that extend from Russia to the Middle East and the Americas. They are being financed and underwritten by international private credit, smaller global and regional financial institutions, and insurers.
Follow-ups & Quick Bites:
Follow-ups:
Crocus Center Terror Attack - Lukashenko Contradicts Putin
Belarusian President Alexander Lukashenko said the Tajik citizens arrested for the attack on the Crocus Center in Moscow were headed to Belarus, not Ukraine — contradicting Putin’s claim they were headed to Ukraine.
Lukashenko said in a press conference this week:
“We placed our units on high alert to prepare for a combat situation…as a result, they were unable to enter Belarus by any means. Recognizing this, they diverted their course and headed toward the Ukrainian-Russian border.”
Putin has been pushing the false narrative that Ukraine was involved in the IS-K attack and the terrorists were headed to the militarized Russian-Ukrainian border where there was a “window of escape.”
Russia’s Footprint in LATAM - Russia Delivers Crude Oil to Cuba
A Russian oil tanker delivered some 715,000 barrels of crude to the port of Matanzas in Russia’s first oil shipment to Cuba in a year. Reports are that Russia will deliver a tanker of crude once a month.
The island is facing blackouts and food shortages that have sparked anger that is boiling over into the largest protests in the Country since 2021.
Quick Bites
India’s Largest Refinery Refuses Russian Crude Oil Deliveries by Sovcomflot
In February 2024, the US sanctioned Sovcomflot, Russia’s state-owned shipping champion, for transporting hydrocarbons.
As a result, India's Reliance Industries, the operator of the world's biggest refining complex, will not buy Russian oil loaded on tankers operated by Sovcomflot. This adds to the cost of business for Russian oil companies and creates arbitrage opportunities through discount pricing on seaborne Russian crude oil.
Armenia Suspends Mir Payment System
Armenian banks will suspend Russia’s Mir payment system starting 30 March 2024 due to US sanctions against the National Payment Card System (NSPK), the issuer of Mir cards. NSPK is 100% owned by the Central Bank of Russia. The CBR developed Mir in 2015 to circumvent Western sanctions following its annexation of Crimea.
The departure from Armenia follows the end of Mir in many Central Asian countries, as well as in Türkiye, a popular vacation destination for Russians. However, it is still accepted in Iran, Cuba, and North Korea.
Russia Replaces Navy Admiral
Admiral Alexander Moiseyev has been appointed as the new acting chief of Russia’s navy.
The removal of Admiral Yevmenov is the biggest shakeup in Russia’s military top brass since the sacking of Aerospace Forces chief Sergei Surovikin last year. Since the second phase of the war began in 2022, the Black Sea Fleet has lost one-third of its ships to Ukrainian drone and missile attacks.
Vol 2, No 16 - BWR 31.03.2024
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