Nitrogen

In 2009 the world consumed 99.8 MMT of nitrogen nutrient (N) in fertilizers; this is set to rise to 110.6 MMT by 2014.*

In 2009 we produced 2.3 MMT of N nutrient and this is set to rise to 2.4 MMT by 2014.

The key to growth: our currently planned investment for nitrogen for 2010-2014 is around US$ 800m, mostly in new products and removal of bottlenecks.

*Sources: IFA, BSC, Fertecon, EuroChem estimates.

Nitrogen is a primary building block for all life. Without nitrogen crops cannot produce sufficient amino acids, proteins and enzymes
Nitrogen plays a critical role in protein formation and is a major component of chlorophyll
Nitrogen is a naturally occurring element in air
Farmers need a steady supply of nitrogen fertilizers to ensure highquality crop growth and yield
Natural gas and atmospheric nitrogen are converted into ammonia, which is the primary raw material for nitrogen fertilizers
The nitrogen market is the most competitive of the three fertilizer segments, given the relative abundance of natural gas in the world – access to low-cost natural gas is a key competitive advantage
The highly competitive nature of this market makes nitrogen fertilizer prices relatively volatile
Production lead time for new nitrogen fertilizer capacity is three years

Sources: IFA, BSC, company data.

Ensuring energy efficiency improvements and removal of bottlenecks, leading to lower costs at both plants through incremental investment
Achieving product flexibility in order to maximize profit margins through alignment of production to market conditions
Ensuring best possible access to attractive markets (i.e. markets where EuroChem is most competitive on a “cash cost delivered to” basis)
Securing access to competitively priced natural gas

Commissioned Russia’s first granulated urea shop (Urea-3) at Novomoskovskiy Azot with nameplate capacity of 2,000 tonnes/day in December 2009
Launched CAN shop at Novomoskovskiy Azot with nameplate capacity of 420 KMT p.a. in October 2009
Construction of Russia’s first melamine shop at Nevinnomysskiy Azot with 50 KMT p.a. capacity on track for launch in 2011
Upgrade of Urea-4 shop to further expand granulated urea capacity on track for launch in 2010

Diversified customer base
Economies of scale due to vertical integration
Low-cost production mainly due to relatively low, albeit gradually rising, natural gas prices
Broad and expanding product range allowing margin maximization
Convenient logistics and proximity to transport hubs (for Nevinnomysskiy Azot)
Secure long-term supply of gas

Age of equipment results in relatively high maintenance costs and restricts maximum efficiency improvements
Transportation costs are relatively high at Novomoskovskiy Azot due to location

Large-scale project: construction of significant new ammonia capacity with access to low-cost natural gas
New product initiatives add flexibility and margin (e.g. compound fertilizers and low-density ammonium nitrate)
Further incremental efficiency improvements are still possible at both plants
Domestic Russian and CIS market potential
Reduction/elimination of import tariff barriers in key target markets

Import trade barriers exist in several target markets
Falling/low natural gas prices increase relative competitiveness of previously marginal and unprofitable producers (increase in competitive supply)
Gradual domestic increase in gas and energy costs may happen regardless of external natural gas and energy price dynamics
New ammonia capacity in low-cost gas regions (e.g. the Middle East) may unfavourably alter the supply – demand balance in the sector

48% (2008: 46%)

56% (2008: 54%)

6th largest global player in nitrogen fertilizer production by ammonia capacity