Top Russian Nutrient Maker Boosts U.S. Sales as Mosaic Shuts

(Bloomberg) -- Europe’s biggest phosphate fertilizers maker is boosting sales to the U.S. after a rival shut an aging plant and the market swung to deficit.

PhosAgro PJSC expects to surpass the 600,000 metric tons of fertilizer it sold in the U.S. last year, and has already sold 500,000 tons, Chief Executive Officer Andrey Guryev Jr said in an interview at the company’s headquarters in Moscow. Those levels would have been unimaginable just a few years ago, when U.S. sales were only about 100,000 tons a year, he said.

Top Russian Nutrient Maker Boosts U.S. Sales as Mosaic Shuts

Prices for phosphate have started to recover after several years of decline as demand for the crop nutrient strengthens in markets including India and Latin America. The market is also being helped by the shuttering of aging and unprofitable plants in the U.S., notably Mosaic Co.’s Plant City operation in Florida. Those factors have helped the global market swing into a deficit of about 3 million tons, Guryev said.

“The market is super good now for many reasons,” Elena Sakhnova, an analyst at VTB Capital in Moscow, said by phone. The closure of Mosaic’s plant last year removed 2.5 million tons from the market, she said. “PhosAgro, a top fertilizer maker with low production costs, is one of the main beneficiaries."

Demand is also growing in Latin America and in India, where import may rise by 1.5 million tons to reach a record 5.5 million tons, Guryev said. Demand in PhosAgro’s home country, Russia, is also showing 5 percent growth this year, revised from an earlier forecast of 1.5 percent growth, on the back of strong farm exports.

"Russia is a strategic priority and the largest, the most important market for us," he said. Sales in Russia doubled in the last five years to 2.3 million tons per year.

Top Russian Nutrient Maker Boosts U.S. Sales as Mosaic Shuts

Trade Wars

PhosAgro sees overall demand for phosphate fertilizers, measured in phosphorus pentoxide, growing by several percent from a year earlier to as much as 45.5 million tons in 2018, Guryev said.

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Guryev even sees a silver lining in U.S. President Donald Trump’s trade war. Retaliatory tariffs on American soybeans are prompting top buyer China to look elsewhere, boosting demand for fertilizer in Brazil and other Latin American producers. India may import more ready-to-use fertilizers after imposing duties on American phosphoric acid.

"The relationship between the U.S. and China and the U.S. and Europe is now creating huge volatility in all the markets,” Guryev said. “Potentially this will lead to a drop in global GDP, but overall volatility for the business is an opportunity to profit."

Fertilizer makers stand to benefit from another Chinese government policy -- its plans to expand the use of ethanol gasoline in vehicles by 2020, Guryev said. The move will stoke “huge demand growth” for fertilizers to produce crops to turn into fuel, Guryev said. Possible regulations in Europe setting limits on poisons in phosphate concentrate including cadmium and arsenic may also affect the market, Guryev said. PhosAgro may benefit as it uses ores of volcanic origin that are free from harmful substances.

Family Business

Guryev was appointed CEO five years ago. Under his leadership, the company boosted output from 5.9 million tons to 8.3 million tons last year, and he sees that figure increasing to 9 million tons this year.

Guryev’s family controls PhosAgro, and his father, Andrey G. Guryev, was named on the U.S. Treasury’s list of so-called oligarchs in February as a possible target for sanctions. Punitive measures brought against Oleg Deripaska and his United Co. Rusal have roiled aluminum markets and put the survival of his business into question. Guryev blames concern about sanctions for a decline in PhosAgro’s shares, which have dropped more than 20 percent in London since touching a high in January.

PhosAgro doesn’t plan a share buyback or delisting from London as the company remains attractive to investors, Guryev said.

"Investors are nervous,” he said. “The logic of imposing sanctions is not clear, therefore everything that is linked to Russia is being sold."

(An earlier version of the story corrected the number of years in the sixth paragraph.)

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