The Ukrainian fertiliser market is trying to wean off supplies from russia. However, up to 20% of the product is still "rebranded". Who imports russian fertilisers into Ukraine

Competition for nitrogen fertiliser consumers in Ukraine has reached its peak. Consumption is increasing, imports are growing. The main manufacturers – the chemical plants of Dmytro Firtash, who previously built his business thanks to special relations with the russian gazprom, are now unable to compete with the products from the CIS countries due to expensive natural gas. The businessman-controlled holding, Group DF, accuses traders of supplying cheaper fertilisers from the aggressor country and hopes that checks by the law enforcement will detain their products at the border.

How is the Ukrainian fertiliser market changing in the context of rejecting russian products, who is recarving it and in what way, was analysed by Mind.

What did Firtash's factories come out with this year? The season for applying nitrogen fertilisers (ammonium nitrate, UAN, СAN) begins in February-March and lasts until June. To be in the market, Ostchem plants (the nitrogen division of Dmytro Firtash's Group DF) produced 515,500 tonnes of fertilisers in the Q1 of 2023 and even increased production compared to the Q2 of 2022 by 36.2%. In particular, Azot of Cherkasy produced 387,400 tonnes, and Rivneazot, 128,000 tonnes. The businessman’s other two manufacturers – Stirol in Gorlivka and Azot in Severodonetsk, are occupied by separatists and do not produce..

"With the current cost of gas in the Ukrainian commercial segment at about 11,000 UAH for 1000 cbm, Ostchem fertilisers could match import prices, but this is not currently happening," notes Dmytro Gordeychuk.

How is the competitive field formed? To maintain high prices, Group DF decided to remove competitors-importers, accusing them of manipulations with russian fertilisers and their import into Ukraine under the "label" of third countries.

"Customs statistics show that in the first five months of 2023, five countries friendly to russia imported 267,400 tonnes of mineral fertilisers into Ukraine. These are Uzbekistan, Georgia, Turkmenistan, Azerbaijan and Kazakhstan," Oleg Arestarkhov, Director for Corporate Communications at Group DF, told Mind.

And this is despite the fact that Ukraine introduced a complete embargo on imports of goods from russia in April of last year.

Is it possible to completely throw out russian fertilisers from the Ukrainian market? Mykhailo Zabluda, Chairman of the Board of Rivneazot PJSC, believes that it is the work of the Security Service and customs service to detect such schemes, and  the government’s task is to effectively protect its markets. "Frankly speaking, we expect from officials adequate quick and effective steps that will protect the Ukrainian market from the influx of russian and belarusian imports. When imports increase, it simply kills jobs. When russian urea comes here, under the guise of Azerbaijani, Kazakh, Georgian or Turkmen – it's just a common crime," he says.

How does the scheme work and what is Group DF's interest? In fact, customs officers have repeatedly caught russian fertilisers on the border with Ukraine, "wrapped" in Azerbaijani packaging. This was told to Mind by Danylo Hetmantsev, Chairman of the Verkhovna Rada’s Committee on Finance, Tax and Customs Policy. "Unfortunately, a large amount of goods from the aggressor country continues to be imported into Ukraine. For example, the State Customs Service recently exposed a scheme for the import of supposedly Azerbaijani mineral fertilisers. But when they contacted the foreigners directly, it turned out that they did not even issue such certificates. This means these fertilisers were russian," the MP assures.

However, if russian fertilisers are on the Ukrainian market, there are not many of them and they are actually very difficult to identify, Dmytro Gordeychuk believes. "Very little such import comes in. These can be russian fertilisers, but no more than 10-15%, otherwise it will be very noticeable. But it is also very difficult to check, because the factories provide quality certificates and certificates of origin: each of the countries – Uzbekistan, Georgia, Turkmenistan, Azerbaijan, Kazakhstan – has its own fertiliser production and exports their surplus. So, either we completely break off trade relations with them, or we accept the situation as it is. Because accusing foreign factories of falsification without clear evidence, we can't do it. It's a criminal offence," the expert believes.

"This can block import for a certain time," believes Gordeychuk. In the season when the demand for fertilisers increases and they are essentially "grabbed just-in-time”, checks can become a serious problem for domestic farmers. They will find themselves in a situation where they will be forced to buy more expensive Ukrainian fertilisers.

Who could have imported fertilisers from russia? This spring season of nitrogen fertiliser application turned out to be quite successful: analysts recorded a demand increase of 25–33% compared to last year, because certain territories of Ukraine were freed from occupiers. If in 2022 farmers purchased 1.3 million tonnes of fertilisers, this season the figure could increase to 1.45 million, predicts Dmytro Gordeychuk. The import of all fertilisers in January – April 2023 exceeded the similar indicator of 2022: 907,000 tonnes of products were brought in against 748,000 tonnes.

And the leader in the import of nitrogen fertilisers from this country was Ukraine Petrochemical Company LLC: the company imported 12,200 tonnes of urea. This little-known trader appeared in the Ukrainian registers less than a year ago. Market participants assume that the company will specialise specifically in the supply of fertilisers from Azerbaijan.

Fertiliser importers to Ukraine and their supply volumes, tonnes

Source: Infoindustriya Company

Mind tried to find out directly from the traders whether they imported russian fertilisers under the guise of products from the CIS. The phone number listed in the register for Ferrotec LLC is not in service. Ukraine Petrochemical Company LLC did not respond to calls. Only the head of Caspit Trade LLC, Anton Serpinsky, denied that the company imports fertilisers from russia. "We do not engage in the import of russian fertilisers," he affirms. The company also clarified that they import fertilisers produced in Switzerland, specifically by Ameropa, as well as fertilisers from the USA.. 

Top 10 importers of nitrogen fertilisers to Ukraine

Source: Infoindustriya Company

Top 10 importers of complex fertilisers to Ukraine

Source: Infoindustriya Company

This is an uneven competition. For example, the retail cost of natural gas for industrial consumers in russia in May of this year was 7 rubles per 1 cbm. That's 3.11 UAH per 1 cbm Ukrainian extraction companies sold natural gas on the Ukrainian Energy Exchange in May at a weighted average price of 10.8 UAH per cbm (excluding VAT) – almost five times more expensive.

The cost of natural gas in nitrogen fertilisers varies from 50% to 90%. Simple arithmetic suggests: to engage in this business, you need to find gas-raw materials at the lowest prices. This is what Dmytro Firtash's company is trying to do. In particular, to purchase natural gas of Ukrainian production from the state-owned Ukrnafta. This has caused scandals and accusations against its head, Sergiy Koretsky, that he allegedly cooperates with a sanctioned oligarch, offering him prices below market ones.

However, considering that imports from the CIS to Ukraine are not banned, Dmytro Firtash's enterprises are doomed to compete with cheaper imported fertilisers from these countries at home. The government can strengthen the businessman's position by checking traders and banning such imports. This is a subject of constant political bargaining. It might only cease with the appearance in Group DF of its own gas well, or some other supplier will provide the holding with access to the cheapest raw materials.

To compete in the market with russia, belarus, Turkmenistan, Kazakhstan, and other CIS countries, which buy relatively cheap russian gas or have their own, Dmytro Firtash's enterprises need to have access to natural gas of Ukrainian production at the minimum cost. Otherwise, as soon as Group DF reduces its own fertiliser prices – importers will also lower them even more, since they have a large margin of strength in the cost of fertilisers due to cheap gas.