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EuroChem release 1H20 financial results

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World Fertilizer,

EuroChem Group AG, a leading global fertilizer company, has recently reported consolidated half-year sales of US$3.0 billion for 1H20 and sales volumes of 12.5 MMT, 6% higher than a year ago.

EuroChem achieved EBITDA of US$830 million in 1H20, 1% ahead of the same period in 2019, reflecting the company’s resilience and its ability to deliver a strong performance, despite the effects of the COVID-19 pandemic. The improvement was underlined by a 1 percentage point increase in EBITDA margin to 28% during the period.

For the six months to 30 June 2020, the Group generated a cash flow from operating activities of U$714 million, 26% above the corresponding period in 2019, with positive free cash flow of US$338 million. Capital expenditure decreased by 18% to US$382 million, reflecting the eased investment cycle and a more prudent approach to investments on the back of global economic turbulence caused by the pandemic outbreak. Operating cash flow remained strong despite the current market environment, covering capital commitments by 1.9 times.

“Our half-year results reflect the strength and resilience of our business model during this challenging period. The COVID-19 pandemic has tested all companies like never before and, as a global business, we have had to adapt and respond to a volatile environment,” said EuroChem CEO, Petter Østbø. “Our success reflects our safety focus, our low cost positions, vertically integrated structure and the vital role fertilizers play in ensuring food security.”

1H20 saw pressure on prices across all fertilizer segments, but the efficiency of EuroChem’s vertically integrated business model allows it to preserve margins in challenging times and low periods in the cycle. The fertilizer industry was one of the less affected by the COVID-19 pandemic and continued to experience healthy levels of demand.

Relatively flat ammonia prices during 1Q20 gave way to significant downward price pressure in 2Q20, mainly due to market over-supply caused by a weakening in demand for industrial ammonia. This trend has been further fuelled by the even lower gas price environment.

Urea prices were mixed at the beginning of the year. Strong US import demand for spring application contributed to an increase in prices by mid-March. With demand shifting from the Western to the Eastern hemisphere from the start of 2Q20, negative pressure on urea prices became more apparent.

MAP prices encountered support in the beginning of the year as a result of reduced Chinese production due to the COVID-19 outbreak and other voluntary production curtailments by major phosphate producers. Despite this, the market experienced some price weakness in 2Q20 with the traditional switch in seasonal demand across different agricultural regions. Sulfur prices remain at attractive levels for phosphate producers, although there was a slight correction on supply concerns generated by the threat of reduced global oil production.

MOP prices were on a downward trajectory until the beginning of 1Q20 due to market over-supply and the unrealised effects of anticipated production curtailments at the end of 2019. The delay in agreeing a new Chinese potash contract combined with record stock build-ups at some ports in China, resulting in some bearishness on the potash spot markets. However, the latest MOP supply contract with China concluded at US$220 CFR / t at the end of April, and this has meant greater certainty of a potash market recovery.

Iron ore prices were more sensitive to heightened market uncertainty as pandemic-related lockdowns took effect around the world in an effort to constrain the spread of COVID-19. Expectations of weaker steel demand globally resulted in lower prices, though on average they maintained a sustainable level of US$93 / t. Limited iron ore stocks and continued robust demand in China as well as supply issues from Latin America contributed to price stability during 1H20.

In 1H20, the Group achieved fertilizer sales of 9.2 million t, a 19% increase y/y. An increase in the sales of potash fertilizers, ammonia from the new EuroChem Northwest plant contributed to the improvement. In monetary terms, sales were 4% ahead at US$2.5 billion, despite a softer price environment.

Total sales volumes reached 12.5 million t by the end of 1H20, 6% upon a y/y basis. Sales of mining products fell by 22% but were offset by a more favourable price environment for iron ore.

In the nitrogen segment, sales volumes rose by 4% with urea sales 8% ahead, driving the improved performance in this segment. UAN sales edged downwards by 2% y/y, and there was a shift in trade flows across different regions following the establishment of final UAN anti-dumping duties by the European Union in October 2019. Despite the imposition of duties, EuroChem maintained a good share of UAN European sales, actually increasing its stake in the UAN sales portfolio by 3 percentage points.

In 1H20, the Group’s decision to prioritise the production and sale of MAP fertilizers due to more favourable market conditions led to its increased share in the phosphates segment, which rose to 64% versus 55% in volume terms in the same period in 2019. In all, MAP sales climbed 56% in 1H20.

Potash sales saw a tremendous improvement in 1H20, reaching 1 million t vs 389 000 million t in the same period in 2019. The share of potash sales as a proportion of total fertilizer sales increased to 11%, which reflects the successful ramp-up of the Usolskiy Potash Project, and product acceptance by customers.


Net covenant debt decreased by 6% and reached US$4.0 billion at the end of 1H20. Net leverage ratio improved to 2.67 times.

In April, EuroChem successfully re-entered the Russian debt capital markets with a new 5-year jumbo RUB35 billion (US$470 million equivalent) transaction across two tranches, despite pandemic-related turmoil in the global financial markets. EuroChem was the first issuer to access the local market since the start of the COVID-19 pandemic, thereby setting a new benchmark for the Group as well as for other corporate issuers. At the end of 1H20, the share of public debt instruments in the Group’s covenant debt portfolio (excluding Project Finance) amounted to 43%.

In May 2020, S&P maintained Group’s rating at BB- with a positive outlook, despite the spread of the COVID-19 pandemic and lower prices for most major fertilizers, as well as a number of rating revisions across other industries.

Corporate developments

The ramp-up of EuroChem’s Usolskiy Potash Project continued during 1H20, with 1.05 million t produced as of 30 June 2020. The two shafts, four flotation tanks and all the site’s compaction trains are now fully operational. Projected design capacity for 2020 is at twice the level achieved in 2019 and estimated at 2.3 million t. The Group is confident that it is on track to meet this target.

It continues to develop its VolgaKaliy Potash Project. The surface beneficiation plant is nearly complete and operations will begin later this year in test mode to ensure not just grades and quality but also the recovery of raw ore levels as the mine expands. Drilling has already reached the sylvinite layer at the deposit and we aim to reach the main potash production panels later in 2020.

Market outlook

Strong urea demand from India, coupled with lower Chinese exports and strong demand in Latin America, indicate that current urea prices will continue to rise into the autumn. The favourable outlook for farmer economics and prospects for increased 2021/2022 US crop season corn acreages also reflect a supportive environment for urea in 4Q20.

Seasonal demand pick-up and the prospects of higher European gas prices for 2H20 should lend support to a currently challenging nitrates market, and AN should fare relatively well.

Favourable farmer economics are expected to support phosphates demand during 2H20. A highly favourable barter ratio in Brazil, healthy Indian soil moisture levels and prospects for a good monsoon may generate further strong MAP and DAP import demand in these major markets in 3Q20. Higher corn prices also seem set to improve US fall demand prospects in 2H20. On the supply side, Chinese phosphates exports remain significantly below 2019 levels. Altogether, the Group expect the global supply and demand balance will continue to support firm phosphates prices globally.

The agreement of Chinese and Indian MOP import contracts in the second quarter of the year at lower levels has returned some certainty to the potash market. Combined with strong import demand due to a highly favourable barter ratio, these factors will continue to support a continued recovery in Brazilian MOP import prices in 2H20. Higher prices in both US corn and crude palm oil in South-East Asia also look likely to significantly improve potash farmer affordability, creating strong MOP import demand in the major US and South-East Asian markets.

The iron ore price continues to be well supported on resilient steel demand from China. The country is the first major economy to return to growth since the outbreak of the COVID-19 pandemic. Global steel production is likely to see a downward trend in 2020, with pig iron pointing to a more moderate reduction on lower scrap availability. Subject to a stable economic environment globally, steel production may find support through important infrastructure projects across Asia that could be initiated later in 2020.

Predicting growth for the full year is more difficult than usual as a result of uncertainty concerning the course of the COVID-19 pandemic, although demand across the board remains solid and the fundamentals in the Group's key markets are strong.

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