War exposes importance of Russian feed phosphates exports

Feed phosphate supply was already tight globally at the beginning of the year, and the Russia-Ukraine war has further complicated the situation. To understand the consequences of the war for Russian phosphate producers, we must first look back over the last 20 years.

THE RISE OF EUROCHEM AND PHOSAGRO

In that time, Russia has become an essential player on the supply side of the international feed phosphates market.

It came to dominate a business that was previously in the hands of Western suppliers such as Tessenderlo in Europe or Mosaic in the US.

Russian producers emerged on the international scene, with EuroChem on the one hand and PhosAgro on the other hand. Both companies experienced tremendous growth in production and sales.

The numbers speak for themselves: the graph on the right shows the growth in exports of monocalcium phosphate (MCP) and defluorinated phosphate (DFP) from EuroChem Lifosa (MCP), PhosAgro Balakovo (MCP), and EuroChem Phosphorit (DFP). The trade statistics do not distinguish MCP from DFP.

Volumes have increased by a factor of four over the last 20 years, from 150,000 tonnes/year to 600,000 tonnes/year.

Both companies consolidated their assets from Former Soviet Union (FSU) state-owned companies and made significant investments to increase production capacities.

If we take a closer look at the trade patterns, we can see that a large share of the volumes was exported through Estonia and Finland. Neither of these countries can consume such large volumes given their population size and feed industry.

Both companies first developed sales to the FSU and northwest Europe before expanding sales to North America and Latin America. Germany was, until recently, the primary destination for Russian producers.

600 k 1,2 k

500 k

400 k

Volume in tonnes 300 k

200 k

100 k $1017

1 k

$188 $216 $218 $297 $300 $374 $828

800

$635

$497 $473 $577 $588 $606 $573 $631 $631

$596

$461

$414

600 Price $/t

400

200

0

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Price $/t Volume in tonnes

All rights reserved: guillaume.milochau@praxed.fr ; source Eurostat, ITC

0

Note: The above numbers are Praxed calculations based on interviews, EuroStat and ITC data

EuroChem and PhosAgro sales developed at the expense of western producers who once dominated the market, namely Aliphos and Yara. Gradually, buyers switched to MCP from Russia and Lithuania thanks to an aggressive pricing strategy.

The main destinations are in Europe, from Ukraine to Spain. Both producers have gained a significant share of the European MCP market, of up to 60%.

IS IT STILL POSSIBLE TO GET RUSSIAN-ORIGIN MATERIAL?

MCP has thus far been exempted from sanctions in the EU. In most cases, sanctions are on individuals rather than businesses. Therefore, shareholders and top management have resigned to avoid compromising their businesses.

Another consequence of the degraded relationship between Russia and Europe is that Borealis declined EuroChem’s offer to acquire its nitrogen business in Europe. This deal would have significantly strengthened EuroChem’s presence in western Europe, including its fertilizer production operation in Antwerp. Borealis operates three world-scale fertilizer production units in France and Austria.

Russian producers will be constrained in their activities in western Europe and North America. However, the finalisation of EuroChem’s takeover of a significant fertilizer distributor in Brazil (Herringer) last April shows that Russian producers will keep developing their business outside of these areas in direct competition with the likes of Mosaic and Yara.

As of late May, ships are still sailing from and to Russian ports, according to maritime traffic reports. However, several shipping companies, including MSC, Maersk, and CMA, announced they would halt cargo booking with Russia. This has mainly impacted container shipping, with oil tankers still finding their way to Russian ports in the Black Sea and Baltic Sea.

It is therefore quite a challenge — if not impossible — to obtain product, as ports used for transshipments in Ukraine (Yuzhny) and the Baltic Sea are now unreachable.

As trade statistics show, Russian

Volume in tonnes 1 045 102 612,5

Raccourcis clavier Données cartographiques ©2022 Conditions d'utilisation

All rights reserved: guillaume.milochau@praxed.fr ; source Eurostat, ITC

Continued from page 37

producers previously transshipped large volumes of MCP and DFP through Estonia (Tallinn), Finland (Kotka), Latvia (Riga), and Lithuania (Klaipeda). These countries have suspended all rail freight to and from Russia.

In addition, large volumes of MCP were also delivered by train to Poland and Hungary through Ukraine and Belarus.

Without access to rail freight, EuroChem is unable to supply critical raw materials such as phosphate rock, ammonia, and sulphur to its Lifosa plant in Lithuania.

Without access to major Baltic ports, Russian suppliers have lost more than 12 million tonnes of loading capacity. Though EuroChem has announced a significant investment to develop the Ust Luga port (6 million tonnes) on the Baltic, it cannot compensate for these losses and will not be operational before 2024.

While it is still possible for Russian producers to send Panamax vessels to Brazil or India, finding Handysize vessels (3,000-8,000 tonnes of capacity) for bulk or breakbulk cargo is not an easy task. Most shipowners operating in the Baltic have ceased trading with Russia.

WHO CAN REPLACE RUSSIAN SUPPLIERS?

Today, only China has the spare production capacity to substitute for Russia, at least on paper. As a result, state-owned Chinese producers like Sinochem have expanded sales outside Asian markets. But Europe is a long way away, and logistic costs and lead times have limited their capacity to deliver to Europe regularly.

Closer alternatives from North Africa are also becoming popular, as long as customers can use DCP or MDCP (monodicalcium phosphate) rather than MCP. European customers also have to compete with markets such as Brazil or the Middle East.

Current market conditions could incentivise a restart of production in Europe. However, this seems unlikely, given developmens such as the recent bankruptcy of Ecophos Group and failure to bring proof of concept for promising technologies that would solve the phosphate industry’s main challenges in terms of environmental impact and sustainability.

Many have opted to stop operating phosphoric acid plants in Europe, but a few still do it. The cost of managing waste and by-products from phosphate production was one of the main reasons for Tessenderlo’s decision to halt its DCP production in 2014. Once phosphorus is extracted from the rock, the remaining phosphorus gypsum must be disposed of or recycled.

Importing phosphoric acid to produce feed phosphate could be a solution, although no-one took the opportunity to acquire the Aliphos Rotterdam plant two years ago. The most likely reason is that there is little added value in producing phosphates from hardto-source and expensive feed-grade phosphoric acid.

Projects to recycle phosphates from waste (fly ash) are emerging but are still in their infancy. Recently, EasyMining has promoted its Ash2Phos process and produced precipitated calcium phosphates from sewage sludge fly ash, with two plants under construction in Sweden and Germany. While this sounds promising, the regulatory framework still needs to evolve to allow such products to enter the market.

Today, the best solution might be to review formulation standards on phosphorus and make the best use of existing solutions such as phytase. Agriculture is by nature a conservative industry, but the current crisis may be an accelerator for innovation. By Guillaume Milochau for Feedinfo