2019
LNZ Group, an agro-industrial group focused on trading seeds, crop protection products and natural gas, has recently entered the mineral fertilizer distribution segment. The new project was launched in June, and within 2-3 years LNZ Group sees itself among the five largest traders in Ukraine.
AgroPortal.ua spoke with Roman Kravets, head of the energy division of LNZ Group, about the company's immediate plans, the main trends in the domestic market and when it is most profitable for farmers to contract mineral fertilizers.
Tell us about the situation on the domestic nitrogen fertilizer market in Ukraine. What factors are setting the trend today?
Roman Kravets: Historically, Ukraine has had two seasons of nitrogen fertilizer consumption: spring and autumn. One third is consumed in autumn and two thirds in spring. However, 2019 is unique in this respect, as there was practically no autumn season as such.
Here I see three main reasons. First, the weather conditions, which affected farmers' application of anhydrous ammonia, aqueous ammonia and UAN, effectively reducing it by more than 30%.
Second, the downward price dynamics during the third quarter, which encouraged farmers to postpone purchases of nitrogen fertilizers for spring application. This trend was set by the historically low cost of natural gas, which forms the production cost of nitrogen fertilizers, falling world prices and the strengthening of the hryvnia.
Third, low prices for agricultural products also fueled so-called «bearish» sentiment among consumers.
Today, on the one hand, we have deferred demand for nitrogen fertilizers and fairly low prices. On the other, a situation where a slight change in the trend of any of the factors that determine the current state can dramatically affect the market.
Ukraine has recently seen a number of shutdowns at urea production facilities. In particular, units at the Odesa Port Plant and Cherkasy «Azot» stopped for technical reasons, and repair works are currently under way. Will this affect the supply of fertilizers to farmers?
Roman Kravets: All shutdowns at Ukrainian plants were planned and did not dramatically affect the situation.
But it should be understood that very low activity was observed among end consumers on the market. Together with the factors listed earlier, we have deferred demand for Q1 2020, which will significantly exceed its typical figures. Add to this the logistical difficulties in the winter-spring period, and we get the preconditions for price growth at peak consumption.
What factors are currently driving the phosphate fertilizer market? How do you assess Ukraine's domestic capacity to meet agriculture's needs for these fertilizers?
Roman Kravets: The situation with phosphate fertilizers is practically the same, as it is influenced by all the same factors as the nitrogen group. In addition, I believe that this year there was no consumption season for phosphate fertilizers as such.
The introduction of an embargo on products from the Russian Federation for a certain period stimulated a sharp rise in demand and prices. However, the very next month saw a reverse trend, which continues now.
Domestic production has grown this year, but its capacity does not allow consumers to be fully supplied with fertilizers. However, the situation with this year's embargo showed that trading companies are able to switch to alternative producers very quickly. Therefore, together with significant carry-over stocks in warehouses, I do not see any critical factors for next year. Even if the situation with restrictions on the Russian Federation does not change.
Share your price forecasts for domestic mineral fertilizers for the near term.
Roman Kravets: I think the lowest prices of the season have now formed across the entire range of mineral fertilizers. A number of factors are intertwined here: a very low price for natural gas, falling world prices, the strengthening of the national currency and deferred demand.
A change in any of these factors will have a multiplier effect, with product prices rising at a much faster pace.
By the way, last week a slight increase in ammonium nitrate prices already began, and this week the cost of urea rose. There is little time left to make decisions.
When is it most profitable for an agricultural producer to contract fertilizers to get the optimal price?
Roman Kravets: This year, if I were a farmer, I would already start buying fertilizers with delivery in December. This will make it possible to get products at the minimum price and avoid logistics problems in the peak season. I expect the first quarter to be calm and orderly.
LNZ Group has recently focused on the distribution of Ukrainian-made nitrogen fertilizers. Why did you decide to develop in this direction?
Roman Kravets: Entering the mineral fertilizer segment was a logical continuation of our development. LNZ Group has distribution experience and an established client network, so we expanded our product line for agricultural producers. Now, in addition to crop protection products, seeds and natural gas, our package includes mineral fertilizers. At present, this is the nitrogen group: ammonium nitrate, urea and UAN. In autumn we will expand the line with complex and phosphate fertilizers.
The main thing that concerns farmers now is the timely delivery of high-quality fertilizer. We work exclusively with manufacturers and are also building a network of storage warehouses throughout Ukraine, so we can ensure this.
Another of our advantages is product availability and market prices. This is quite important, given that in the 2019-2020 season there were practically no imports of nitrogen group products. This means that even minor disruptions in plant operations can lead to a market collapse.
Tell us how your logistics are organized. Do you have enough capacity?
Roman Kravets: Before the start of the season, we evenly placed products in 10 warehouses throughout Ukraine. These warehouses are specially equipped for storing mineral fertilizers and have all the necessary infrastructure and a heating system.
The main advantage of this solution is proximity to the client and the possibility of prompt shipment. It is typical market practice for plants to set quotas on product release at peak demand. Our solution allows customers to receive goods on time.
Products can be collected using your own transport or delivered to the farm. The search for vehicles and forwarding will be handled by the LNZ Group logistics service.
What volumes of mineral fertilizer sales does LNZ Group plan to reach this year?
Roman Kravets: Our plan for the 2019-2020 season is to meet up to 10% of agricultural producers' needs for mineral fertilizers.
Thank you for the conversation!
Nataliia Rekunenko, AgroPortal.ua
