2006 Ammonia & Urea Output Down 2% yoy

In 2006 the Ukrainian nitrogen fertilizer industry decreased output of urea, a major export product, by 2%. Production of ammonia, which is the main input used in urea production, decreased by the same percentage. The largest decrease was posted by Azot Cherkasy (AZOT: N/R), due to a gas supply shortage in April-June and ammonia facility refurbishment in October-November. Stirol (STIR: HOLD) reported the second largest decrease, 4% in ammonia and 5% in urea, stemming mainly from repairs in September-November following an explosion at one of its ammonia facilities. Meanwhile, Azot Severodonetsk increased production of ammonia and urea by a remarkable 5% each, its highest level since 2003. Vladimir Nesterenko: If it were not for one-off output drops at Stirol and Azot Cherkasy, the industry would post 1-2% output growth, which is consistent with our forecast. The slight decrease in production volumes could not offset generally positive developments from the price side. While 2006 average market prices for ammonia and urea remained virtually flat compared to 2005 level (USD 244 and USD 222 per mt, respectively), we expect higher transparency to result in industry revenues gaining more than 10% yoy. A notable improvement has already been demonstrated by Azot Cherkasy, which is expected to report a 36% yoy increase in revenues in 2006 after cutting out its tolling schemes. Unfortunately, we can not reflect this improvement in the company’s valuation, as the stock remains “Not Rated” due to protracted conflict between the company’s shareholders.

Ukrainian Urea and Ammonia Production, ths mt

Urea                                                  
                                  2006        2005 change, yoy
——————————————————-
Stirol                          815.9       862.8       -5.4%
Odesa portside            902.5       869.0        3.9%
Azot Severodonetsk     371.9       352.4        5.5%
Azot Cherkasy             688.3       748.8       -8.1%
Dniproazot                  738.6       760.3       -2.9%
——————————————————-
Total                         3517.2      3593.3       -2.1%

Ammonia                                               
                                2006        2005 change, yoy
——————————————————-
Stirol                         1329.6      1385.0       -4.0%
Odesa portside           1127.9      1135.3       -0.7%
Azot Severodonetsk    1014.7       965.6        5.1%
Azot Cherkasy             753.0       874.0      -13.8%
Dniproazot                  523.0       508.6        2.8%
Rivneazot                   382.1       357.3        6.9%
——————————————————-
Total                        5130.3      5225.8       -1.8%

Source: Interfax, Ukrainian News