Daily analyst comments

At a meeting held on August 20, the Government Commission for Protective Measures in Foreign Trade and Customs and Tariff Policy adopted a decision not to introduce quotas for mineral fertilizer export, but to extend the validity period for export duties for mineral fertilizers until late 2009, Interfax reported. It had been supposed earlier that the introduction of export quotas could help to reduce mineral fertilizer export by 2 million tons and thus double domestic supplies. However, the Russian Ministry for Economic Development views the quotas as unfeasible, since Russian mineral fertilizer producers fully satisfy domestic demand, and growth of demand is limited solely by agricultural consumers' ability to purchase fertilizers.

We recall that in March 2008, the government approved a 5% export duty for potash fertilizers and an 8.5% export duty for compound and nitrogen fertilizers in order to increase supply and reduce domestic prices for mineral fertilizers. Meanwhile, the government noted that if the introduction of export duties did not have any effect, it would have to take more drastic measures and introduce quotas for mineral fertilizer export.

The decision to extend the term of export duties until late 2008 was generally anticipated by the market, given the inexpediency of their cancellation amid the current conditions on the mineral fertilizer market. In our estimates, we adhered to the scenario that export duties would stay in force for the next few years. Therefore, the government has implemented the most likely scenario, where export duties are preserved, but quotas are not introduced.

In our opinion, the government's decisions are optimal for both agricultural and mineral fertilizer producers. Thanks to the export duties, the former will receive additional means for purchasing mineral fertilizers, while the latter will avoid losses caused by inability to export part of their goods. We note that the introduction of quotas was doomed to failure from the very beginning, since mineral fertilizer producers fully satisfy Russian consumer demand, and growth of demand is limited solely by consumers' ability to purchase fertilizers. Therefore, the introduction of quotas would have led to an oversupply on the domestic market.

This news is moderately upbeat for Russian mineral fertilizer producers, since export duties are far less significant for companies' profitability than export quotas. In our view, given the government's decisions and the favorable market environment, the mineral fertilizer sector is attractive for investments. Among the most appealing investment vehicles, we highlight the securities of Uralkali (RTS: URKA), Silvinit (RTS: SILV), Acron (RTS: AKRN), Dorogobuzh (RTS: DGBZ) and Kuibyshevazot (RTS: kazt).