Банкеръ Weekly

Briefs

FERTILIZER PRICES SLUMP DUE TO DECREASED DEMAND

The introduction of protective customs duties for the import of ammounium nitrate in the second half of the year doesn't seem to be of much help to the Bulgarian fertilizer manufacturers. The depreciation of the US dollar did not make the situation on the domestic market much different from last year's when a 25-percent duty (and not the currently effective 40-per cent) was charged on imported products.The farmers should be pleased at that situation because stronger competition resulted in a reduction of the prices of ammonium nitrate, manufactured by Agropolychim of Devnya and Neochim of Dimitrovgrad. But due to the low purchase prices of wheat, most agricultural producers lack sufficient money to invest in the new crop, information about the first two weeks of the active season for applying fertilizers shows. Obviously, farmers will again count on financial aid from the Agriculture Fund for the purchase of ammonium nitrate. The nitrate fertilizers, produced by Agropolychim, are offered on the market at BGN230/t, down BGN50/t from last year, the enterprise's Executive Director Vassil Alexandrov said. The basic slags, manufactured by the same plant, are also cheaper than last year. The Devnya-based enterprise offers a new product - a hi-tech liquid nitrate fertilizer, which is the main component for treatment of soil in the USA.Neochim has also started decreasing the prices and offers its ammonium nitrate at BGN269/t. At the same time the enterprise exports this product at about USD100/t, which is quite illogical, at least at first sight. It turns out that Bulgarian farmers pay much more that the western agricultural producers for one and the same product, which makes it impossible for them to cope with foreign competition. The explanation of the fertilizer manufacturers is that this is a wholesale price and it's only normal for it to be lower than the price at which the ammounium nitrate is sold to end producers in Bulgaria. According to Tosho Dimov, a member of Neochim's Board of Directors, it is still early to make more long-term forecasts about the domestic market on thе basis of the initial weaker performance, as the enterprise's installations have been operating since September 21-22 only. However, Mr. Dimov expects a new reduction of the price of ammonium nitrate as a result of the price decrease as of October 1 of natural gas by BGN5/1,000 cu m. It is well-known that the price of natural gas is the most important factor for the cost of fertilizer manufacturers' products.Data about the export of fertilizers in the first seven months of 2002 are also indicative of a crisis in the sector. Exports for the period amounted to USD33.7MN, down from USD54.9MN in January-July, 2001. The decrease is to a large extent a result of the orientation of the two leading local fertilizer manufacturers to the domestic market where the prices are higher. But they will face problems with imports this year as well, despite the 40-percent protective customs duties. The meeting between representatives of the Agriculture Fund, producers and importers of fertilizers, held last Friday (September 27), was also indicative of that. It is rumoured that the foreign products have already crossed the Bulgarian border, but have been registered as temporary imports on which no customs duties are levied. According to expectations, the imported fertilizers will be sold immediately after January 1, 2003 when the protective measure expires. Thus, the traders will pay 25-percent duty, and not 40 per cent. And if the import is from a CEFTA member-country (such as Romania for example) it will be duty free althogether.The third local producer of fertilizers - Agrobiochim of Stara Zagora, which is in insolvency procedures - is far apart from that battle. Interest towards its workshop for ammonium nitrate has been shown by Agropolychim, but its appetites have been cut off for the time being. The reason is the insolvency procedures against the company Fallback, which purchased a year ago the Caprolactam workshop, Vassil Alexandrov, Executive Director of the Devnya-based enterprise said. Most of Agrobiochim's infrastructural facilities - a thermoelectric power plant, a railway station, pipelines, and electrical equipment - were some time ago sold as a part of that workshop. Therefore, whoever buys the ammonium nitrate installation should try to acquire the Caprolactam workshop or hold negotiations with its future owner. The problem is that the capacities of Agrobiochim's core production are quickly crumbling away and it might turn out that scrap processors are the only candidate buyers of the ammounium nitrate workshop.In a separate development, a conflict broke out last week between Agropolychim and the carbamide producer Chimco of Vratsa. In a letter to the mass media Vassil Alexandrov said that the company, headed by him, would quit the Association of Fertilizer Manufacturers in Bulgaria. I don't want to become an accomplice to shady relations between the companies in the branch and the State, he pointed out in front of the BANKER weekly. Mr. Alexandrov claims that the Chairman of Chimco's Board of Directors Valentin Dimitrov personally issues documents on behalf of the entire association. For that reason Agropolychim may even set up a separate association together with Neochim, Mr. Dimitrov added. However, Neochim refused to take sides in the agrument between its two competitors. As the BANKER weekly has already written, Chimco is in a grave financial situation. The company has been entirely decapitalized as by end-June, 2002 its net assets' deficit exceeded BGN37MN. But this performance is not a result of an overall bad economic situation, having in mind that Neochim has posted a BGN8,151,000 profit for the first half of this year.

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