Nitrogen

Sales volumes for urea and ammonium nitrate increased by 29% and 24% year on year respectively in 2009, but this was countered by prices that were lower by an average of 60% year on year. The price effect significantly impacted revenues for this segment, which declined 29% in 2009 to RUR 39.6bn from RUR 55.9bn in 2008 (2007: RUR 40.0bn) including sales to other segments. Nitrogen segment EBITDA fell 61% from RUR 23.9bn in 2008 to RUR 9.3bn in 2009 (2007: RUR 14.5bn). Lower sales volumes in organic synthesis products, which are also reported in the nitrogen segment, also affected the result, but these products represent only a small portion of volumes and revenues.

While prices for fertilizers declined, EBITDA fell at a faster rate than revenues largely due to the fact that EuroChem’s overall cost of sales decreased only 6.8%. Expenses for natural gas, which is used as a raw material for producing fertilizers, increased by 18.5% to RUR 9.3bn in 2009, from RUR 7.8bn in 2008. For a discussion of the impact of natural gas prices on EuroChem’s business, see this page. Through capex aimed at improving efficiency and reducing natural gas consumption, we have successfully made incremental improvements on the amount of gas used per tonne of ammonia, which is illustrated in the table below:

Sales volumes in this segment improved in 2009 because farmers are least likely to take “holidays” from nitrogen fertilizers (not applying the fertilizer for a year, relying on nutrients remaining in the soil). Nitrogen is the key fertilizer for growth and mass in crops, and is also the fastest to be depleted from the soil.

Our share of sales to Asia increased in 2009 due to active government support of agriculture and fertilizer subsidies in countries like India. Sales in Russia and the CIS also increased as our own distribution network successfully increased sales volumes in 2009. At the same time, North American sales dropped significantly as natural gas prices for American producers fell to a level that made them more competitive than producers shipping products long distances.

Through investments in new production lines (2009: launched granulated urea and CAN), we have been able to increase product flexibility. In line with our strategy we have sought to increase sales of higher-margin products like CAN, urea and complex fertilizers, as opposed to low-margin products like ammonia. Investments and other measures taken to improve efficiency are represented by a 20% increase in tonnes of ammonia produced per employee from 281 in 2008 to 337 in 2009.

* Based on actual annual average caloric content of gas supplied to plants.
Source: Integer research.

Nitrogen sales by region
(including sales to other segments)

The share of sales in Russia and the CIS increased, helped by our growing distribution network.

Nitrogen sales by product
(including sales to other segments)

Product flexibility enables us to adapt to changing demand.