Ukraine: new opportunities, new challenges

On 1 July 2019, the Cabinet of Ministers of Ukraine extended the embargo on Russian goods to include all fertilizers.

The ban against Russian goods was first introduced on 10 January 2016 as a response to Russia’s restrictions on food imports from Ukraine and prevented shipments of MOP from Russia, among other goods. The list of goods was extended to include amsul and CAN, effective from 1 March 2018.

This embargo was then extended to all fertilizers under HS codes 31 02, 31 03, 31 04 and 31 05 from 1 July 2019, effec-tive until 31 December 2020. Ammonia shipments are not be affected.

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Argus White Paper:

Ukraine: new opportunities, new challenges

European and African suppliers have been quick to target the Ukrainian market after the government widened its ban on Russian fertilizers imports. But selling to Ukraine also brings new logistical challeng-es and the risk of broader import restrictions.

The ban has not come as a complete surprise to the market amid continued geopolitical tensions between Ukraine and Russia. The Ukrainian government has been slowly push-ing Russian firms out of the market by introducing various measures to curb inflows of Russian product in recent years. These measures include the tightening of anti-dumping duties on Russian AN and other AN-based fertilizers, and introducing sanctions against a number of Russian companies.

The embargo has not had a big impact on nitrogen fertilizer imports from Russia as they have been effectively blocked by the anti-dumping duties. But imports of NPKs, and to a lesser extent MAP, have been more severely impacted.

2016 2017 2018 2019 2020

Timeline of Ukrainian regulations concerning Russian fertilizer imports

10 January 2016: ban against imports of various Russian goods including

MOP

1 March 2018: the ban was extended to

include Russian amsul and CAN

27 March 2018: anti-dumping duties were

raised on Rus-sian AN and extended to

other AN-based fertilizer

14 May 2018: a decree was signed to expand the list of prominent

Russians and companies subject to Ukrainian

sanctions including Euro-chem, Phosagro, Acron

and Uralchem, and some of their shareholders

18 December 2018: Ukraine’s cabinet of min-isters extended the embargo on Russian goods

until 31 Decem-ber 2019

1 July 2019: a ban on all

Russian fertil-izer imports

imposed and ef-fective until 31 December 2020

Argus White Paper: Ukraine: new opportunities, new challenges

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The disappointing autumn offtake means there is now signifi-cant unsold stock in the country — some estimate there is as much as 220,000t of unsold MAP/NPS/NPKs as of mid-Sep-tember — most of which will likely remain in warehouses until next spring. The high stocks have also led to rumours that there is a possibility of redirecting cargoes that are scheduled to arrive in Ukraine in the near term to other destinations.

New outlet for European, African suppliersThe Ukrainian NPK market is traditionally dominated by Rus-sian product. But the ban has opened up opportunities for other suppliers to enter that market to replace the approxi-mate 800,000t supplied by Russia in 2018.

Belarus, which has historically been Ukraine’s second-largest supplier, is also benefiting from the ban, which has pushed up prices. Belarusian producer Gomel Chemical Plant sold 14,000t of 16-16-16 at $400/t dap border station in big bags and 12,000t of 8-19-29 at $420-430/t dap border station in big bags for August shipment to Ukraine. Gomel Chemical Plant sold 16-16-16 at $343-346/t dap and 8-19-29 at $370/t dap shortly before the ban’s introduction.

And there has been no shortage of interest from new suppli-ers. Ukrainian importers have been flooded with offers for various NPK and NPS products.

In a bid to ensure product arrived in time for autumn applica-tion, deals concluded for July-September shipment for non-Russian product included:

�� 26,000t of Moroccan 15-15-15

�� 20,000t of steam-granulated Latvian 16-16-16

�� 6,000t of Greek 10-24-0

�� 15,000t of Jordanian 10-26-26

�� 15,000t of Jordanian 9-18-28

�� 30,000t of Norwegian 16-16-16

�� 6,000t of Bulgarian 20-20-0+13S

�� At least 5,000t of Turkish 20-20-0+14S

�� 6,000t of Romanian 16-16-16 have arrived in Ukraine

�� 3,000t of Greek 20-20-0+8S and 3,000t of 15-15-15+6S

�� 1,000t of Latvian compacted 7-20-30.

The list above not only demonstrates the widening pool of suppliers to Ukraine, but also the diversification in grades be-ing imported into the country. Traditionally, Ukraine consumes 16-16-16 and 10-26-26 but there are limited suppliers of these grades outside of Russia, forcing Ukraine to seek alternatives.

Ukrainian NPK prices surge on Russian import banNPK prices in Ukraine rose by as much as 17pc under price assessments by the Argus NPKs service, following the imposi-tion of the ban at the start of July. Surging prices for limited quantities of available NPK unleashed a wave of buying among distributors immediately after the ban’s introduction, as buyers scrambled to secure product for the autumn season in anticipation of a potential shortage. Indeed, sales of limited Russian product quickly vanished, which sent a number of importers into panic mode leading to a wealth of offers in the market for non-Russian product.

NPK imports from Russia accounted for 77pc of Ukraine’s mar-ket in 2017 and 58pc in 2018. Volumes have fallen in recent years as a result of measures implemented by the Ukrainian government to reduce imports from Russia.

The price of 16-16-16 jumped by a staggering 1,050-1,100 hryvnia/t ($41-43/t) in the first four days of the ban, to HRN12,500-12,650/t bagged cpt, while the price of 10-26-26 surged by HRN1,000/t to HRN14,600-14,700/t bagged cpt — including 20pc VAT — under Argus NPKs assessments. And prices continued to rise, peaking in early August. Prices for 16-16-16 jumped by 17pc or HRN1,900/t to HRN13,300-13,500/t, and 10-26-26 prices by 13pc, or HRN1,800/t, to hit HRN15,400-15,500/t bagged cpt.

Offers were higher still but a lack of end user demand flat lined prices before correcting downwards. Domestic trade activity has been low for the autumn application season, as buyers have been cautious about delivery dates of fresh imported product. But the main reason for lack of demand is the soft international grain market, which means farmers have less cash for buying fertilizers.

Moreover, the strengthening of the Ukrainian hryvnia against the US dollar allowed traders to lower asking prices, while some traders have been forced to reduce their margins and cut asking prices to obtain cash flow. But the price cuts have not encouraged more sales.

Ukrainian NPK price comparison HRN/t

11,000

12,000

13,000

14,000

15,000

16,000

17,000

Sep Dec Feb May Aug

16-16-16-Ukraine cpt (bagged)10-26-26-Ukraine cpt (bagged)



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Ukraine NPK imports fall in July It was no surprise that Ukrainian NPK imports fell in July, as the import ban on Russian fertilizers removed the country’s largest NPK supplier.

Ukraine imported 104,747t of NPKs in July, 26pc less than in July 2018, customs data show. Imports from Russia fell by 98pc to just 1,485t. In July last year, 87,329t of NPKs arrived from Russia, or 61pc of total imports.

Belarus was Ukraine’s largest NPK supplier last month, with imports rising by 74pc on the year to 47,084t, taking a 45pc market share. Belarus’ market share in July 2018 was 19pc.

Polish producers have also benefited from the Russian import ban, with imports from Poland in July at 20,138t, up by 228pc on July last year. Poland’s market share last month was 19pc, up from just 4pc a year earlier.

Imports from Norwegian and Finnish producer Yara totalled 14,838t last month, up by 204pc from 4,888t in July last year.

Ukraine imported 8,412t from Serbian producer Elixir last month, against nothing in July 2018, although the company was active in Ukraine before the Russian import ban, deliver-ing 13,732t in January-June.

Imports from Lithuanian producer Arvi rose by 116pc on the year to 4,814t last month.

Also of note is a 3,000t delivery from Bulgarian firm Agropoly-chim — the first Bulgarian complex fertilizer to be imported

by Ukraine, although according to data from Argus NPKs, the cargo was NPS 20-20-0+13S, rather than NPKs.

Moroccan MAP emerges as a new supply sourceIt is not only NPK suppliers that have benefited from Ukraine’s measures to oust Russian firms. Ukraine is a MAP market, which has been traditionally dominated by Russia. Ukraine imported around 120,000t of MAP in 2018, of which 68pc or 82,000t was sourced from Russia, GTT statistics show.

And similar to NPKs, Ukrainian imports of Russian MAP have been declining over the last year or so as a result of sanctions, opening up an opportunity for non-Russian phosphate produc-ers to gain a slice of action in the Ukrainian market.

New NPK supply to Ukraine

Norway: 30,000t of Norwegian 16-16-16 reportedly sold

Morocco: OCP sells a total of 26,000t of 15-15-15 to traders

Romania: 6,000t of Azomures 16-16-16 sold

Turkey: 20-20-0+12S, 20-20-0+14S and 15-15-15+8S from several

Turkish producers sold

Bulgaria: 6,000t of 20-20-0+13S sold by Agropolychim

Latvia: 20,000t of steam-granulated 16-16-16 sourced from NPK Expert while LV Agro supplied

1,000t of compacted 7-20-30

Greece: 6,000t of 20-20-0+8S and 15-15-15+6S sold

Jordan: NJFC shipped two cargoes of 10-26-26 and 9-18-28

Ukrainian NPK imports by origin

0

50

100

150

200

250

300

350

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

EU Belarus RussiaOthers 2018 2017

'000t'000t — GTT/Customsdata

0 200 400 600 800 1000 1200 1400

YTD



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One of the producers benefiting from this ban is Morocco’s OCP. The first batch of Moroccan MAP was detected in trade data to Ukraine in May, when Morocco supplied nearly 8,000t of MAP out of a total 24,000t. Russia remained the main sup-plier at around 13,000t.

Since then, Argus Phosphates has identified at least four MAP cargoes that have been sold by OCP for the Ukrainian market for June-September delivery. Total deliveries from Morocco until September are estimated to be around 53,000t for MAP and 7,000t of DAP.

DAP is not traditionally consumed in Ukraine, but imports for this product started to increase following the Russian import ban. Ukraine has also become a fresh outlet for Turkish DAP. Turkish producer Toros sold 40,000t DAP for July and August loading.

Another notable change is that Kazakhstan raised its MAP shipments from 6,000t in 2018 to 15,000t in the first half of 2019, while Belarus supplied 11,000t in 2019 compared with none previously.

With the phosphate markets generally stagnating globally amid oversupply, shipments to Ukraine represent a fresh potential outlet for non-Russian producers in the face of lack-lustre demand elsewhere.

Logistical lessons to be learntWhile the most obvious challenge faced by Ukraine follow-ing the announcement of the import ban was sourcing new product, a logistical challenge surfaced as new product was sourced.

Firstly, there has been significant congestion at a number of ports in Ukraine with long waits to discharge. It was estimated that seaborne fertilizer imports in Ukraine in August amount-ed to more than 100,000t, of which over half is thought to be 16-16-16 and 15-15-15.

Secondly, some market participants believe there is not enough warehouse space to store such a large volume of fertilizers.

Thirdly, the internal logistical infrastructure is not sophisti-cated enough to deal with such a large volume of imported product in such a short space of time. There are not enough rail cars available to transport all of the imported product across the country, while competition from the grain market has also reduced availability for fertilizer shipments.

And finally, the country has a lack of bagging capacity.

These logistical issues have always existed in Ukraine, but the problems have been amplified by the volume of product

arriving into the country by sea. Much of the product from Russia was previously imported by rail. These problematic factors suggest Ukraine was not prepared for such a large influx of seaborne imports in such a short space of time. As a result of these issues, there were some concerns over whether NPS/NPKs would reach consumers in time for the autumn ap-plication season, which typically begins at the end of August and lasts until the end of October. But a lack of end user demand for autumn application has evaporated much of these concerns. If demand was stronger, such logistical issues may have been more serious for Ukraine’s agricultural business.

Potential import quotasAlthough Ukraine has become a new outlet for a number of suppliers, there is some uncertainty over whether Ukraine will impose fertilizer import quotas.

Ukraine’s Interdepartmental Commission on International Trade issued two statements on 28 August announcing special investigations into imports of nitrogen fertilizers, including AN, CAN, urea, and UAN, as well NPs and NPKs, regardless of origin. The investigations were initiated by domestic nitrogen fertilizer suppliers and the Ukrainian Chemists Union, respec-tively, and will seek to assess whether such imports will harm the business of domestic producers.

Companies have to register their interest within 30 days from the announcement and have 60 days to submit their com-ments to the Ministry of Economic Development, which will conduct the investigation.

NPKs are produced in Ukraine by Sumykhimprom, DZMU and Ukrtechnophos, but these plants often run at low production rates. Sumykhimprom’s production capacity is about 660,000 t/yr, while DZMU has an NP/NPK capacity of 10,000-15,000 t/month. The latter also has a 5,000 t/month blending unit. Ukrtechnophos has a 120,000 t/yr NPK/NS compaction plant.

Russian suppliers shift focusWhile Ukrainian buyers focused on securing volumes from alternative sources, Russian exporters have lost one of their key outlets. But Russian exports to Ukraine have dropped over the past year.

The Ukrainian government’s attempts to curtail Russian imports through anti-dumping duties and sanctions in recent years, culminating in the import ban on all Russian fertiliz-ers, have seen Russian producers shift their focus away from Ukraine.

Since the extension of sanctions in May 2018 on Acron, Euro-chem, Phosagro and Uralchem, over continued geopolitical tensions between Russia and Ukraine and the conflict in east-ern Ukraine, Eurochem and Phosagro have withdrawn from the Ukrainian market by selling their local subsidiaries.



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For more information:

Russian shipments to Ukraine totalled 1.65mn t of NPKs in 2017 — including blended 33-1-1 — representing its largest export market, with 28pc of all shipments, Russian customs data show. This fell to 803,000t in 2018 following the ¬¬ex-tension of sanctions against a number of Russian companies.

Russian producers have focused on the Brazilian market. Rus-sia shipped 735,991t of NPKs to Brazil last year, up by 85pc from 395,925t in 2017.

Russian shipments to India have also increased significantly, with all exports by Phosagro. The firm’s exports to India rose by 179pc from 119,550t in 2017 to 333,684t in 2018.

Russian exports to Europe — EU and non-EU countries and excluding Ukraine — have increased, indicating Russian ex-porters have been trying harder to boost their market share in this region. Russia’s shipments to Europe totalled 1.36mn t in 2017, which rose by 21pc to 1.65mn t in 2018.

After the ban came into effect, some market participants expected buyers in the Baltic states, where companies such as Phosagro have a leading market share, to postpone ad-ditional requirements in the hope that prices would drop, as additional Russian supply would be moving to the region. But the Baltic region has seen little change as most buy-ers are covered throughout autumn. Prices in the region are largely stable-to-soft, driven more by seasonal shifts than an increase in supply.

Russian exports 2017 t

1,652,571

395,925119,5501,342,579

2,053,083

Ukraine

Brazil

India

Europe(exc. Ukraine)

Other

Russian exports 2018 t

817,151

790,144

329,4551,701,712

1,995,552

Ukraine

Brazil

India

Europe(exc. Ukraine)

Other

Argus NPKs:

Analysis and data in this white paper was sourced from the Argus NPKs service. Argus NPKs is closely monitoring NPK developments in Ukraine, as well as NPK developments in the global market.

•Detailed table on African tenders•Key import and export market commentary•NPK compound and blend price comparison•Supply, demand and price updates•Summary of latest deals and related nutrients markets•Global agricultural and market news

•Dry bulk fertilizers freight assessments•Downloadable market data including - African NPK

tenders, Indian NPK imports, Ukrainian NPK imports, Russian NPK exports and New NPK capacity

•Extensive use of graphics, maps and visuals to improve digesting of key information

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Ukraine: new opportunities, new challenges