The past year was challenging for the fertilizer sector as a whole. Another record bumper harvest kept soft commodity prices from sustained pricing appreciation, just as a slew of new production capacity was commissioned globally. With the supply growth overshadowing moderate rises in fertilizer demand, prices collapsed. At the same time, the additional supply placed intense pressure on all producers, with up to a third of global supply in loss-making territory towards the end of the year.
Yet the fundamentals of our industry haven’t changed – and the prevailing supply situation should not detract from this fact. Demand remains healthy and growing, deeply rooted in one of the world’s most fundamental needs: food. The global population is increasing steadily and expected to reach 9.6 billion by 2050; a 30% increase on today’s level. Against this backdrop, fertilizers will retain a leading role, but manufacturers will need to adapt – and embrace efforts in research and development – to become more efficient and sustainable. This premise defines the Board’s long-term strategic focus. It also highlights the importance of equipping the Group with the necessary skill sets and systems to successfully execute its vision.
“We remain very confident about the long-term future of the fertilizer industry as a whole – and of EuroChem’s intrinsic role.” Alexander Landia – Chairman
Since its founding 15 years ago, EuroChem has acquired, developed and refined several unique characteristics that distinguish it from its peers; attributes that collectively enable it to thrive across the market cycle and fare better than most in difficult times. Our strong international footprint gives us genuinely global – and increasingly diversified – exposure. In 2016, the Board approved steps to bolster our own distribution network with expansions in South America and Eastern Europe. We now have ready access to several major markets, while our extensive on-the-ground presence gives us the advantage of detailed local knowledge. This means we can align ourselves closely with our customers’ requirements; reacting quickly – and with the flexibility to rebalance efficiently when necessary. This marketing agility, combined with wholly-owned raw material resources and production sites located in major markets or low-cost production regions, effectively secures our global competitiveness.
With several major projects underway, including our Usolskiy Potash project due to start operating in late 2017, the Board continued to focus on diligently calibrating investment monitoring procedures and systems. These projects will lead to a sea change in the Group’s operating and financial profile, while becoming drivers of growth for their respective regions. With the upcoming start of our first potash project, a key priority for the Board will be to ensure the Group capitalizes on its investments. The Board is acutely aware of the significance of these projects for current and future employees and their families, as well their importance beyond EuroChem. We remain wholeheartedly committed not only to building the business from within, but also to supporting and sustaining wider growth in concert with regional and state authorities.
A responsible approach
Mindful of the high profile nature of our industry and our own responsibilities, we aim to uphold the highest safety standards. The Board has continued to emphasize the Group’s accountability in safety and environmental matters, and we continue to strive to become champions of community and employee engagement, a trusted and respected supplier to our customers, and conscientious stewards of the natural environment.
In collaboration with our industry peers, we participated in the inaugural Global Fertilizer Day in October, aimed at raising awareness of the fertilizers and the far-reaching benefits of these essential products. As the world’s population continues to grow and the market evolves, EuroChem’s products – and increasingly sophisticated variants of them – will be needed more than ever.
I would like to thank my fellow directors for their advice and support during this most challenging of years. We have had a few changes to our Board since our last annual report. In August, Nicholas Page, a non-executive Director and member of the Audit Committee, left the Board. In October, Nikolay Pilipenko, our longest serving non-executive Director and member of our Audit Committee and Nomination and Remuneration Committee, stepped down after more than seven years on the Board. We are profoundly grateful to both Nikolay and Nicholas for their commitment and contribution to the Group over the years. Sergey Vasnetsov was appointed as independent Director in April and we welcomed Kuzma Marchuk as non-executive Director a few weeks prior to publishing this report.
A leading player in the years ahead
We remain very confident about the long-term future of the fertilizer industry as a whole – and of EuroChem’s intrinsic role. Over time, the market will rebalance as demand continues its relentless growth. The industry exhibits robust fundamentals and, as a business, we are in excellent shape strategically and operationally.
EuroChem’s competitive advantages are rooted in its access to low-cost raw materials, soon to include potash, a growing array of specialty products and its global sales and distribution reach. So whilst some major challenges remain to be faced, we are confident that we will emerge as a leading player in the years ahead.