Azerbaijan bolsters transit of Asian fertilisers to Europe Review by Caliber.Az

Rapidly changing geopolitical realities in the post-Soviet region have played the role of a driver, increasing transshipment through Azerbaijan of transit cargo from Central Asian countries (CA) to Türkiye and the EU. Notably, amid the energy and commodity crises in the Old World, fertiliser plants are closing down en masse. The urgent need for nitrogen and other fertilisers is contributing to a tangible increase in their export from the Central Asian region via the Trans-Caspian route. On the previous day, ADY Container and Azerbaijani feeder vessels operating in the Caspian and Black Seas transshipped fertilisers through the port of Alat to the Romanian harbour of Constanta. Fertiliser shipments through the port of Alat will increase further in 2023, once the special terminal becomes operational.

The increase in prices of nitrogen, potash, and phosphate fertilisers observed since the beginning of the year may reduce future agricultural yields and result in higher food prices in 2023, the Food and Agriculture Organisation of the United Nations (FAO) said in a recent report. Such prospects are very realistic, all the more so because the problem of agrochemical shortages is linked not only to reduced fertiliser exports from Russia and Belarus due to the sanctions, but also to reduced production in the European Union. The problem with rising fertiliser prices has been evident since last year, including due to higher freight rates and rail tariffs, but the shortage has been acute since late February this year, following the outbreak of the war in Ukraine. In the past, European countries imported about 40% of fertilisers (and raw materials for their production) from Russia and Belarus.

For example, according to the World Bank (WB), global fertiliser prices rose 10% in the first quarter of 2022, increased by another third in the next quarter and by the end of 2022 the price increase in the sector is projected at 70%. As stated in the WB report, nitrogen fertiliser prices this year increased significantly more than after the 2008 crisis due to the reduction in their production in European countries because of the rise in prices of imported raw materials - primarily Russian natural gas, which served as the main source of ammonia production. In particular, in the last week of August, urea prices increased again by 15%, to $660 per tonne. Other segments also saw a decline in production due to lower supplies of Belarusian and Russian potash, as well as sulphur, apatite, and other phosphate fertiliser derivatives. In turn, potash prices grew by almost 80% and, according to the WB, the recent price hikes were linked to increased sanctions against Belarus as well as disruptions in shipments through Black Sea ports.

At the same time, another negative consequence of Europe's prolonged energy crisis has been a decline in production at chemical companies, including fertilisers, since the spring. In August and early September, nitrogen fertiliser plants using natural gas as feedstock were shut down. For example, two Polish nitrogen fertiliser producers, Azoty and Anwil, shut down in the second decade of August. Norwegian company Yara also partially suspended production. At the end of August, Ince, the UK's largest fertiliser plant, also shut down. On September 1, the largest Baltic producer - the Lithuanian plant Achema, froze its ammonia and urea production because of rising gas prices and uncontrollable increase in production costs.

EU energy ministers recently held an emergency meeting because of the energy crisis and related serious fertiliser shortages. Thus, the European Commission (EC) proposes to abolish import duties on raw materials for the production of nitrogen fertilisers, except for supplies from Russia and Belarus. In particular, the possibility of zeroing import duties on ammonia and urea, which currently stand at 5.5% and 6.5%, is being discussed. At the same time, the EC is discussing the possibility of increasing exports of ammonia, urea, other raw materials, and finished products from countries that have preferential access to the EU market, etc. In this regard, there are excellent prospects for growth in the supply of fertilisers to the European market from the post-Soviet region - Central Asian states and Azerbaijan.

Favorable market conditions - high demand for scarce nitrogen fertilisers, helped SOCAR CarbamidePlant, located in the Sumgayit Chemical Industrial Park, to sharply increase exports of this valuable product to foreign markets, including Georgia, Türkiye, Moldova, Romania, Italy, Bulgaria, Brazil, India, etc.

The urea plant, commissioned in January 2019, consists of three production sites where ammonia, urea, and urea pellets are produced. The plant has a capacity of 1,200 tonnes of ammonia and 2,000 tonnes of urea per day, with relatively low domestic tariffs for gas, electricity, water, utilities, transportation, and other costs making it a high-margin operation. Taking into account the rise in prices for nitrogen fertilisers at world markets, the output and export revenues of SOCAR Carbamide Plant increased significantly in the current year: in the first quarter, the plant produced 151.1 thousand tons of urea - a 9.2-fold increase. In turn, in January-March 2022, the company exported 83.6 thousand tons of urea to the world markets - an eightfold increase in volume and 33.4 times more in monetary terms! Exports of nitrogen fertilisers produced in Sumgayit grew consistently during the second quarter, and in January-June, the volume exceeded 153 thousand tons, and the year-end is expected to see tangible growth in external supplies.

Moreover, amid the food crisis, high fertiliser prices have encouraged Turkmenistan, Kazakhstan, and Uzbekistan to increase supplies of urea, sulphur, phosphate, and other fertilisers to foreign markets. For example, the Uzbek company Uzkimyosanoat plans to triple its phosphate production capacity, and about 40% of its products will be exported. Also, 30% of nitrogen and 70% of potash fertilisers will be exported: in total, Uzbekistan plans to export fertilisers up to $400 million in 2022, twice as much as two years earlier.

Turkmenistan is also expanding its production and supply of fertilisers: in January-July this year, carbamide producer Garabogazkarbamid increased output by 107.6% and exported more than 463.8 thousand tons of nitrogen fertilisers.

The lion's share of these shipments is transited through Azerbaijan: for example, while about 167,000 tonnes of fertilisers were transshipped through the Baku International Sea Trade Port (BISTP) in Alat for the whole of 2019, the volumes have more than tripled to about 558,000 tonnes in the first five months of 2022 alone. Moreover, the transshipment of bulk cargoes from Central Asia through BISTP is expected to reach 1.3-1.4 million tonnes by the end of this year: roughly 90% of this category of cargo is mineral fertilisers.

In parallel with the increase in bulk cargo handling at Alat port, Azerbaijan's subsidiary ADY Container and vessels of the Caspian Shipping Company (ASCO) are expanding the transit of fertilisers from the Central Asian region, using new combined rail-sea cargo delivery schemes. On the previous day, for example, mineral fertilisers produced in Uzbekistan were delivered to the Romanian port of Constanta for the first time. A block train consisting of 54 forty-foot containers was transferred from Turkmenbashi port to Alat port by ASCO feeder vessel "Makhmud Rahimov", then the containers were reloaded onto ADY Container platforms and delivered by rail to Georgian port Batumi, before being sent by Kaspar feeder vessel "Rasul Rza" to its final destination in Romania. This scheme ensures maximum participation of Azerbaijan railway resources and the domestic merchant fleet in the freight process, thereby ensuring that Azerbaijan receives the lion's share of revenues from fertilizer export transit operations.

In order to optimise management with increasing transit of fertilisers, construction of a special terminal for transshipment and storage of fertilisers started in Alat port at the end of last year: this facility is planned to be commissioned by the beginning of 2023 and it will be the most powerful terminal in the Caspian Sea, capable to accept fertilisers coming from Aktau and Turkmenbashi ports. With the commissioning of the new terminal, Alat port plans to handle around 2.5-3 million tonnes of fertilisers annually in the medium term. The availability of a large terminal in Azerbaijan will make it possible in the future to attract local and international trading companies capable of independently purchasing, storing, and re-exporting large batches of fertilisers depending on global demand and price conditions.