SWOT analysis by segment

NITROGEN
Strengths
  • Diversified customer base, including solid foothold in key home markets (Russia, Western Europe and CIS)
  • Advantageous cost positioning in Russia due to relatively low natural gas prices and in Belgium due to proximity to end-users
  • Established global distribution platform in EuroChem Agro (K+S Nitrogen)
  • Specialty products in nitrogen offering
  • Partial natural gas back-integration in Russia
  • Production flexibility helps adapt to demand and maximise margins
  • Convenient logistics and proximity to own transhipment terminal
  • Economies of scale
Weaknesses
  • Age of equipment leads to relatively high maintenance costs and
  • restricts maximum efficiency improvements
  • Transportation costs are relatively high at Novomoskovskiy Azot due to location
  • Non-integration of Western assets which are dependent on the market for raw materials
Opportunities
  • Further increase self-sufficiency in Russia with own natural gas
  • Build or buy significant new ammonia capacity in regions of lower-cost natural gas such as the Middle East or North Africa
  • Product mix enhancement with value-added, lower-gas-content and premium product lines
  • Russian and CIS markets offer unmatched growth potential
  • Supply Western European operations with lower-cost feedstock
  • Further efficiency improvements through modernisation Threats
Threats
  • Import trade barriers exist in several target markets
  • Gradual increase in gas and energy costs in Russia
  • Falling/low natural gas prices increase relative competitiveness of previously marginal and unprofitable producers (increase in competitive supply)
  • New ammonia capacity in lower-cost gas regions (e.g. Middle East, North Africa) may unfavourably alter the supply-demand balance in the sector
  • Impact of shale gas development on natural gas prices in the United States and globally
PHOSPHATES
Strengths
  • Own supply of high P2O5content (37-38%) apatite accessible through open-pit mining
  • Phosphate fertilizer facilities located close to ports and their target markets (Europe and Russia/CIS)
  • EU-based Lifosa benefits from no import tariffs in Europe
  • Absence of environmentally harmful substances in apatite (cadmium), which is particularly important for exports to Europe
  • Lifosa’s reputation as a high-quality producer allows for premium pricing
  • By virtue of Kovdorskiy GOK’s geology, added benefit of iron ore as co-product of apatite mining
Weaknesses
  • Transportation costs for Kovdor apatite are relatively high for Lifosa and EuroChem-BMU
  • Relatively high maintenance costs and restrictions on maximum efficiency improvements due to age of equipment
  • Increased costs associated with the depth of the Kovdor mine as well as the mine pushback program.
Opportunities
  • Developing phosphate rock mining deposits in Kazakhstan to reach raw material self-sufficiency
  • Raise production at Kovdorskiy GOK
  • Further efficiency improvements at EuroChem-BMU and Phosphorit
  • Construction of phosphate fertilizer plant in Kazakhstan
Threats
  • New capacity expansions can unfavourably alter the supply-demand balance in the sector and/or compress the normally higher margins enjoyed by integrated producers like EuroChem
POTASH
Strengths
  • Vast reserves (an estimated 3.2bn tonnes*); estimated fifth largest globally
  • Close proximity of the Gremyachinskoe deposit to the Black Sea port of Tuapse
  • High nutrient content averaging 39.5% KCl at Gremyachinskoe and 30.8% KCl at Verkhnekamskoe
  • Deposits are located in areas with existing infrastructure
  • Industry estimates place EuroChem among leaders on cash cost delivered to key markets curve
  • Own transhipment terminal to support Gremyachinskoe (Tuapse)
Weaknesses
  • Limited in-house experience in mining and lack of potash greenfield mine construction know-how in the global market may lead to higher costs due to the need to engage sub-contractors for planning and construction of mines and processing facilities
Opportunities
  • Become one of the leading players (up to 8 MMT KCI in annual capacity)
  • Use advanced technology for shaft sinking and enrichment, resulting in lower cash cost per tonne of production
Threats
  • Prolonged, significantly worse-than-expected market conditions could negatively affect EuroChem’s ability to continue financing these investment projects
  • Significant risks involved in sinking shafts to 1,200 metres below surface (Gremyachinskoe), through water layers and other challenging geological conditions
  • Significant capacity additions resulting in oversupply in the industry
*A+B+C1 according to Russian reserves classification.  
DISTRIBUTION
Strengths
  • Good coverage of key agricultural regions of Russia and Ukraine
  • Agrochemical consulting services, including soil analysis services, coupled with high-quality seeds and crop protection offering
  • Growing brand recognition associated with quality and reliability
  • Highstoragecapacity
Weaknesses
  • Limited presence in certain key agricultural regions of Ukraine
  • Limited fertigation infrastructure in Russia/CIS
  • Traditional farmer approach to fertilizers in Russia – limited application know-how and preference for certain traditional types of fertilizer
Opportunities
  • Increase presence in Southern and Central Russia and Ukraine
  • Establish presence in neighbouring CIS countries
  • Raise farmer awareness of the commercial attractiveness of higher-value-added agrochemical products
Threats
  • Price regulations in Russia can lead to the contraction of domestic sales margin
  • Intensifying competition
  • Currency and political risks