The new chief of EuroChem Group AG, the fertilizer producer owned by Russian billionaire Andrey Melnichenko, sees traditional nutrients rather than super specialty products as the best way to expand market share.
Three years ago, Melnichenko outlined plans to turn closely held EuroChem into one of the few companies in the world producing higher-value specialty nutrients that use microorganisms and bacteria to tailor-make products for farmers. Now, Petter Ostbo, who became chief executive officer in February after eight years at bigger rival Yara International ASA, has other ideas.
“I do not see too many reasons to be focused on super specialties when we have so many opportunities to grow where we are already very good,” Ostbo, who had been chief financial officer at No. 2 Yara, said in an interview in Moscow. While focusing on the core business, the company will still offer some advanced products, the 40-year-old Norwegian said.
EuroChem started three new plants in Brazil in the past year
Source: EuroChem's presentation
EuroChem is one of three companies in the world to make all three main types of fertilizers -- potash, phosphate and nitrogen -- and is now the fifth-largest producer. Still, its market share in each group of nutrient is just “one digit,” which is why it’s better to expand the main business, Ostbo said.
“This makes perfect sense,” Elena Sakhnova, an analyst at VTB Capital, said by phone. “The sector of super specialty fertilizers is tiny, while EuroChem has low production costs in basic fertilizers and may benefit from it.”
The focus on the core business comes as producers look set to build new mines or expand capacity to tap increased demand from farmers. EuroChem started a potash mine in Russia last year and plans another one in 2020. It just opened a $1 billion ammonia plant in Kingisepp, Russia, and is considering a second one in the same area.
The company also built three plants in Brazil in the past year, helping its sales in Latin America almost match those in Russia in the first half.
“EuroChem is a low-cost company in the low-cost region,” Ostbo said. “We can afford to build new plants.”
For Ostbo, accepting an offer to work for EuroChem was a personal challenge.
“I was a bit skeptical at first,” he said, adding that he was surprised by the quality of the Novomoskovsk plant after visiting. “If you look at chemical plants outside of Russia, they are often old and a little bit of a poor state. I was expecting to see an old Soviet plant in a poor state. But when I saw it, I actually couldn’t believe my eyes.”
By Yuliya Fedorinova