Ports and fertilizers: results and outlook

Despite the sanctions, Russia managed to make good money on the export of mineral fertilizers last year. Domestic ports contributed essentially to this success. Yet, will it be possible to make it last?

From the early spring of 2022, foreign experts had been predicting a plunge in the purchases of Russian mineral/chemical fertilizers – from a 25-30% decrease to a “complete collapse”. In reality, the losses proved to be essential, but much lower. As for the income from the sale of fertilizers, it offset the considerable decline in exports in full.

Less but more expensive

In the end of the previous year, the Russian Fertilizers Producers Association (RFPA) announced an expected reduction in their exports by 17% in 2022. Taking into account the record high achievements of 2021 (about 38 million metric tons), that meant a decline to 31.54 million tonnes. That was the price of the sanctions – cargoes blocked in ports, refusal to provide services to Russian ships, increased freight rates for ships flying under "neutral" flags, hindering of cargo insurance, bank payments, etc.

However, when summarizing the results of the year, both the initiators of the sanctions and those sanctioned were surprised with the income having set a new historical record despite a significant decrease in the scope of exports of mineral fertilizers.

According to the calculations made by the UN Food and Agriculture Organization’s experts, Russian companies managed to earn $16.7 billion despite a 10-pct drop in supplies in January - October 2022. Taking into account the most moderate extrapolation in November-December, it can be assumed that Russia's annual revenues from the export of mineral fertilizers have exceeded the milestone of $20 billion with the result of 2021 ($12.3 billion) being exceeded by almost 70% - Graph 1.

The "secret" of such a success is now quite obvious to experts, even those from unfriendly countries: the sanctions imposed on the world's largest wheat exporter entailed a sharp increase of prices for all food products and simultaneously spurred the demand for mineral fertilizers with Russia also holding the leadership in this segment of the global market – Graph 2.

The sabotage on the Nord Stream pipelines and restrictions imposed on Russian LNG tankers prices caused the hike of prices for natural gas, the key component for production of nitrogen fertilizers. Potash fertilizers also rose sharply amid the sanctions imposed against Russia and Belarus. The circle is closed: having practically deprived themselves of the opportunity to produce mineral fertilizers, the Western countries were forced to buy them actively. Such a favorable (so far) market situation is being used by Russian producers and Russian ports help them.

Handling volumes: what’s behind the figures

It should be noted that compared to other segments of the maritime business, domestic ports suffered the least from the sanctions. According to the Association of Commercial Sea Ports (ASOP), total cargo throughput of Russian ports in 2022 reached 841.5 million tonnes, 0.7% higher than in 2021. Taking into account the drastic fall of container throughput (by 26%) and the sharp decrease of ferrous metal handling (by almost 16%), the mineral fertilizers made the most essential contribution to the total increase. The rose by 25.1% year-on-year, to 24.2 million tonnes.

So, Russian ports accounted for almost 78% of all mineral fertilizers exports. This is not surprising since the top importers are Brazil, India and China (after Estonia’s rejection). Besides, Russia has significantly increased supplies to Turkey and Vietnam, as well as to the friendly states of Africa and Latin America, which accounted for minority shares of imports in this segment before the crisis.

As for the North America, the traditional buyers of Russian mineral fertilizers on the continent are not only friendly Mexico, but also ... the USA with the Government encouraging its companies to purchase them.

Basing on the supplies geography, sea exports of Russian mineral fertilizers were distributed among the regions as shown in the table.

It shows that only the Arctic basin saw the decrease of volumes. This is due to a decrease in supplies to the countries of North-Western Europe rather than to a decrease in the capacity of Murmansk port. Therefore, with the end of the export cargo traffic maneuver, the results of 2021 can be restored and even exceeded. Besides, work is underway on construction of a terminal on the western coast of the Kola Bay for the transshipment of up to 5 million tonnes of mineral fertilizers per year. It is expected to be put into operation in Q2’2023.

The absolute leadership in handling of mineral fertilizers was retained by the Baltic basin ports. At the same time, a significant decrease registered in Great Port of Saint-Petersburg (by almost 30%) and Vyborg (47%) was offset by shipments from the port of Ust-Luga which almost tripled, to 11.85 million tonnes. That ensured the overall growth in the basin. The results of the port of Kaliningrad are of particular note. In spite of relatively small general volumes (about 10 thousand tonnes), handling of mineral fertilizers almost tripled, year-on-year.

It seems that Lithuania's "blockade" of land cargo traffic to the Kaliningrad Region since last spring had a positive effect, encouraging a more active involvement of seaborne transport both to supply cargo to our western exclave and to export its products. As it is known, the GEO NPK plant (Uralchem ​​Concern) in Chernyakhovsk commenced operation in 2021. The design capacity of the enterprise is as high as 150 thousand tonnes per year with a possible increase to 220 thousand tonnes. Thus, in the coming years we can expect even more dynamic growth in shipments of mineral fertilizers from the port of Kaliningrad.

The situation with handling of this type of cargo in the Azov-Black Sea basin can be referred to as stable with broad prospects for growth. Exports from Novorossiysk in the crisis year of 2022 increased by over a third (up to 1.7 million tonnes), while their decrease in the port of Tuapse was less than 5% (up to 1.49 million tonnes). The port of Yeysk also demonstrated an increase of almost 9% - up to 940 thousand tonnes. All those results made it possible not only to offset almost 60-pct reduction of major shipments from port Kavkaz, but also to ensure a stable general increase in the basin.

Last year, handling of mineral fertilizers in Rostov-on-Don increased almost 17 times to almost 214 thousand tonnes. Test shipments began in the ports of Temryuk and Azov (5 and 12 thousand tonnes, respectively) and those volumes are expected to be built up. One more port (and city) is being built on the Arabat Spit. In February 2023, the Krasnodar Territory authorities announced the allocation of a land plot for the construction of a new complex near the port of Taman. Its design capacity is 5 million tonnes of ammonia and other mineral fertilizers per year.

Thus, Russia gets the opportunity to create a comprehensive cargo hub at an extremely advantageous crossroads of both sea and inland water trade routes. This seems to be especially significant in view of an extensive programme on modernization of the hydraulic engineering facilities of the Volga-Don Shipping Canal and the adoption (together with Iran and India) of practical measures to revive the North-South ITC project.

In this context, it is worth noting the active increase in handling of mineral fertilizers by the ports of the Caspian basin. In 2021, only Astrakhan was involved. In 2022, Makhachkala and (especially important) Olya joined it. That let the ports increase their volumes almost 8.5 times.

Actually, this is far from the limit for the region: apart from the development of handling facilities, the Government of the Russian Federation is set to carry out large-scale dredging works on the Volga-Caspian Sea Canal. From 25 December 2023, safe navigation of vessels with a draft of at least 4.5 meters is to be ensured along the entire canal which means the highest possible load for most projects.

The most modest results in handling of mineral fertilizers were those in the Far East basin. That is because the vast majority of enterprises producing such valuable products are located in the European part of Russia.

However, the situation may improve there. A plant for the production of urea and methanol is under accelerated construction in the village of Wrangel near Nakhodka. A new terminal of up to 1.8 million tonnes in capacity is planned for construction. It will be able to welcome vessels of up to 195 meters in length and 53 thousand tonnes in deadweight. Although this project is to be completed and to be fully operational in more than 2-3 years, this will be an important step towards creating a comprehensive center for exports of mineral fertilizers in the Far East.

Hopes and concerns

While summarizing the results of the past year and evaluating the possibilities of the near future, it should be noted that Russia has an undoubtedly high potential for production and export of mineral fertilizers although there are risks associated with its full-scale realization.

First of all, it is the limited capacity of the existing ports for handling of this type of cargo. According to the estimates of the Russian Fertilizers Producers Association, it is equivalent to 31.4 million metric tons. Thus, the "reserve" barely exceeds 7 million tonnes, which seems to be insufficient both in terms of the demand in the global market and in terms of the ability to meet the demand of new Russian projects.

Additional complications are associated with the complete absence of Russian terminals for liquid ammonia and its mixtures (for example, with urea), as well as with the safety concerns when it comes to handling bulk ammonia. Out of the three terminals located in the territory of the former USSR two facilities are in the Latvian port of Ventspils and in the Estonian port of Sillamae. Thus they are cut off by the sanctions barrier for an indefinite period. The third one is located in the Yuzhny port near Odessa. The construction of such facilities from scratch (for example, near the port of Taman) requires considerable time, while the situation in the market is changing rapidly.

The relatively warm winter of 2022-2023 has already contributed to a reduction of the crisis prices for the natural gas and further stabilization is possible in the future. This will enable at least some specialized foreign enterprises resume their operation thus reducing the demand for Russian products and knocking down their prices.

Obviously, it can lead to a forced reduction in the production of mineral fertilizers in our country, the first signs of which appeared last year. In just seven months of 2022, ammonia production volumes reduced by 12.8% (to 10.1 million tonnes), potash – by 25.8% (to 4.6 million tonnes). Against this background, some growth in the production of phosphate (+0.4%, to 2.6 million tonnes) and nitrogen (+3.5%, to 6.9 million tonnes) fertilizers looks like little consolation.

However, let's hope for the best: as long as Russia has natural gas, and the entire world requires food products, mineral fertilizers will remain a reliable component of the cargo base in domestic ports.

Sophia Vinarova

More industry-related content is available on our social media pages:  YouTube, Telegram, Yandex Zen