Belarus boosts potash production capacity as Western sanctions intensify

<p> Brief: </p> <ul> <li>Belaruskali on August 31 launched the Petrikov mining and processing plant in Gomel Oblast with annual capacity of 1.5 million tonnes of potash fertilizers, with the potential to double output in the future. </li> <li>The Petrikov mine will reach its design capacity in 2022.</li> <li>The resource base for potash production in Belarus is steadily increasing. In May 2019, Belaruskali started the construction of the Darasinsky mine with a design ore extraction capacity of about 8 million tonnes with the prospect of increasing it to 9 million tonnes.</li> <li>From January 2021 to August 2021, Belaruskali increased its production capacity from 11.5 million tonnes of fertilizers per year to 13.15 million tonnes in physical terms.</li> <li>According to the plan, after the launch of the Petrikov mine and the expansion of existing plants, Belaruskali’s production capacity will increase up to 15.5 million tons per year by 2025 and up to 16 million tons by 2030.</li> <li>Belarus is interested in increasing potash exports as a crucial source of FX revenues. However, Western sanctions cast doubt on Belaruskali export plans.</li> </ul> <p> Belaruskali on 31 August put into commercial operation the Petrikov Mining And Processing Plant (Gomel Oblast) with the capacity of 1.5 million tons of potash fertilizers a year, with a possibility to double the output. </p> <p> The company operates on the basis of the Starobin potassium salt deposit (Minsk Oblast) and includes four mines, auxiliary shops and service divisions. </p> <p> Belaruskali CEO Ivan Golovaty during his report to President of Belarus Alexander Lukashenko on 27 August that Belaruskali production capacity was engaged at 100% and since January 2021 it was increased from 11.5 million tons per annum to 13.15 million tons per annum. By 2025 the production capacity is planned to increase up to 15.1-15.5 million tons and by 2030 to reach a level of 16 million tons. </p> <p> Belaruskali increased potash fertilizer production in H1 2021 by 21.8% year on year to 6.496 million tons, while in January-July - by 16.6% to 7.546 million tons. </p> <p> Exports of potash fertilizers in physical terms grew by 10.4% yoy in January-July 2021 to 6.98 million tons, while supplies to the domestic market increased by 65.5% to 625 thousand tons. </p> <p> Commentary </p> <p> The construction of the Petrikov mine, based on the Petrikov potassium salt deposit, started in August 2014. The project involves the construction of a mine and a sylvinite concentrator to produce fine and granulated potassium chloride. </p> <p> For Belaruskali, the $1.5bn project has been the most ambitious in recent years. It is being implemented using the company’s own funds and credit resources. In particular, the Eurasian Development Bank provided Belaruskali with a five-year loan of $400 million to implement the project. </p> <p> The first potash fertilizers were produced at the Petrikov Mine on 30 January 2020. It was reported at the time that Petrikov Mine plans to reach design capacity within three years. The first shipment of 28,604 tonnes of potash fertilizers from the Petrikov Mine was made on 20 August 2020. As of 1 August 2021, the Petrikov Mine produced about 1.4m tonnes of ore, of which the dressing plant produced about 158,000 tonnes of potash. </p> <p> Currently, preparatory works have been completed at the Petrikov Mine site and the third stage of construction is underway. Petrikov Mining And Processing Plant CEO Yuri Petrovsky noted in April 2021 that the company will reach its design capacity in early 2022. </p> <p> Belaruskali is currently the only potash producer in Belarus, with Belarusian Potash Company (BPC) acting as designated export trader in Belarusian potash fertilizers since 2013. Over the past years, the geography of the company’s exports has reached over 100 countries, and BPC’s share in global exports of potash fertilizers is about 20%. </p> <p> Meanwhile, the resource base for potash fertilizer production in Belarus is constantly increasing. </p> <p> It is worth noting that in May 2019 Belaruskali started the construction of the Darasinsky mine with design ore extraction capacity of about 8 million tonnes, with the prospect of increasing it up to 9 million tonnes. This project is designed to support the resource base of Belaruskali's third mine. </p> <p> In July 2019, Belaruskali and China’s Migao Corporation completed the construction of a potassium nitrate plant with a production capacity of 160,000 tons per annum of potassium nitrate and 124,000 tons per annum of granulated NPK fertilizers. </p> <p> All of these projects, including the construction of the Petrikov Mine, show that Belarus is interested in rapidly increasing the production of potash fertilizers, because exports of potash fertilizers are a major source of foreign currency revenues for the Belarusian budget. </p> <p> However, it is doubtful that Belarus will be able to use the entire export potential of the potash industry amid Western sanctions against Belaruskali. </p> <p> It should be remembered that on 25 June 2021, the European Union imposed economic sectoral sanctions on Belarus, including a ban on trade and transit of certain types of potash fertilizers. The EU restrictions do not apply to deals made before 25 June 2021. </p> <p> On 9 August 2021 the United States imposed sanctions against 23 individuals and 21 entities from Belarus, including Belaruskali. The United Kingdom and Canada have also imposed sanctions on major sectors of the Belarusian economy, including the potash industry. The U.S. sanctions are already in force (120 days' respite - until December, given only for Belaruskali), they allow blocking any action with the Belarusian structures, including in the potash industry. As opposed to the European ones, the American sanctions have a secondary effect. The sanctions are based on the principle of extraterritoriality. That is, the US will be able to apply them to companies of third countries that cooperate with Belarusian enterprises and persons under sanctions, if they wish. </p> <p> The consequences of the sectoral sanctions introduced by the U.S. on 9 August can be dramatic for the Belarusian potash industry. Both export volumes and margins may drop. </p> <p> At the moment virtually all exports of Belaruskali go through the Lithuanian port of Klaipeda. At the same time, Minister of Transport and Communications of Lithuania Marius Skuodis said that Lithuania would stop the transit of Belarusian potash fertilizers on 1 December 2021 due to the U.S. sanctions against Belaruskali. </p> <p> Although Belarusian Prime Minister Roman Golovchenko said that Belarus had been preparing for such a scenario and that by the end of 2021 it would be ready to deliver potash fertilizers via Russia’s seaports of Murmansk and Leningrad Oblast, it would be very problematic to implement it. </p> <p> Russian ports do not yet have sufficient capacity to handle the entire volume of Belarusian potash exports (about 10 million tonnes per year). Besides, taking into account the remoteness of Russian ports, as well as the presence in Russia of Belaruskali’s competitor Uralkali, the transportation of fertilizers through Russian ports will reduce the profitability of the Belarusian producer’s business. </p>

2021-09-06

Primepress