Global demand for fertilizer, which is traditionally growing over the last few years, may decline in the agricultural season 2020/21 year 3% on the back of the pandemic and the recovery of the chemical market will take several years. Against this background, Russian producers are expected at the National rating Agency, will reduce the production of more than 1% and will increase the debt burden by at least 20%. Smooth out the drop in prices and demand in the global market of the Russian chemists helps in the growth of sales in Russia, experts say.Russian producers of mineral fertilizers can reduce production in 2020 by 1.3% to 22.9 million tonnes in terms of 100% nutrients, estimated the analysts of the National rating Agency (NRA). In General, the forecast of the International Association of fertilizer producers (IFA), global demand for fertilizer will be reduced by 3% in 2020-2021 crop year due to the effects of COVID-19.In April 2020, the total production of mineral fertilizers decreased by 9%, mainly due to nitrogen fertilizers (down 23% yoy) at the same time, the production of potash fertilizers grew by 4%, phosphate and compound — 13%. In may the fall was played: total fertilizer production increased by 9% compared to may 2019, nitrogen — 5% potassium and 10% phosphorus — 15%. The pre-crisis level of production of mineral fertilizers in Russia will reach in the next year, according to the Agency.Additional pressure on the nitrogen sector has increased competition in the world due to a record fall in gas prices, which is the raw material for this type of fertilizer. Russian Association of fertilizer manufacturers have sent the government a proposal to impose a temporary moratorium on the indexation of gas tariffs. Despite the fact that the cost of Russian manufacturers, as a rule, foreign below, taking into account import duties on fertilizers from Russia, the industry’s competitiveness on the world market may decline, reminiscent of the NRA. While the global market remains in oversupply with all types of fertilizers. So, for the last five years the production capacity of potash fertilizers in the world grew by 22% while increasing consumption by 11%, nitrogen — 9% the demand growth of 7%, phosphoric acid — 12% increase in demand by 9%. In this regard, average prices of Russian producers of potash fertilizers and compound fertilizers remain below last year’s lows.These factors will not be able to compensate the weakening of the ruble, which is beneficial to the Russian producers who sell fertilizer, mainly for export. In the NRA noted that companies with the ruble as the currency of reporting and foreign currency debt fix losses due to negative exchange rate differences, as well as the growth of debt burden that can adversely affect their attractiveness on the capital markets ��apetala. Meanwhile, the biggest players in the debt is mostly foreign currency: March 31, 98% of the debt PhosAgro is denominated in dollars and euros, “Akron” more than 70%, the “BRIC” — about 88%. According to the NRA, in 2020, the debt burden of most public Russian producers of fertilizers will increase. So, if the current price trends by the end of 2020, the ratio of total debt to EBITDA “FosAgro” could be closer to 3 (at the end of 2019 — 1,8), “Akron” — to exceed 3.5 (at the end of 2019 and 2.6), the “BRIC” — will exceed 4 (at the end of 2019 and 3.3).Overall, says Andrew Lobanov of “Aton”, the fertilizer market was affected by the coronavirus to a lesser extent than other sectors, as fertilizers are of critical importance for food security. Despite this, global demand for fertilizer can be reduced in 2020 due to reduced solvency of farmers and the disruption of the supply chain. The expert notes that against this background, the domestic market, historically minor for the largest Russian producers of fertilizers, for them becomes more attractive.This is confirmed by the calculations of the NRA: in 2019, to supply fertilizers to the domestic market increased by 14.5% to a record 9.5 million tons, and by the end of the first quarter of 2020, they have already risen by 38% to 1.2 million tons. To enhance the attractiveness of the Russian market contribute to the current regime of “counter-sanctions” and the state support for the agricultural sector, noted in the NRA. In addition, in may the government introduced mineral fertilizers in the list of goods, railway transportation which is subsidized, which will also support domestic producers. At the same time, according to the agriculture Ministry, in 2019 due to low prices of Russian farmers purchased fertilizer 14% more of their needs, which may restrain the growth of domestic demand in 2020.Olga Matushenko
