Mineral and Chemical Company EuroChem

Nitrogen is a primary building block for all life. Without nitrogen crops cannot produce sufficient amino acids, proteins and enzymes
Nitrogen plays a critical role in protein formation and is a major component of chlorophyll
Nitrogen is a naturally occurring element in air
Farmers need a steady supply of nitrogen fertilizers to ensure good quality crop growth and yield
Natural gas and atmospheric nitrogen are converted into ammonia, which is the primary raw material for nitrogen fertilizers
The nitrogen market is the most competitive of the three fertilizer segments, given the relative abundance of natural gas in the world; access to low-cost natural gas is a key competitive advantage
The highly competitive nature of this market makes nitrogen fertilizer prices relatively volatile
Production lead time for new nitrogen fertilizer capacity is 3 years

Key capacities in MMT p.a.	Novomoskovskiy Azot	Nevinnomysskiy Azot	Total
Ammonia	1.67	1.16	2.83
Urea	1.49	0.89	2.38
AN	1.29	1.42	2.71
UAN	0.43	1.02	1.45
CAN	0.42		0.42
Methanol	0.34	0.13	0.47
NPK		0.46	0.46
Acetic Acid		0.17	0.17

RUB bn	2010	2009	2008	2007
Revenue	47.22	39.58	55.92	39.99
EBITDA	13.57	9.31	23.87	14.52
EBITDA Margin	29%	24%	43%	36%
Sales Volumes (mmt)
Ammonia	0.52	0.64	0.62	0.39
Urea	1.71	1.51	1.17	1.26
Ammonium nitrate	1.71	1.83	1.48	1.63
UAN	0.68	0.67	0.92	1.03
Methanol	0.33	0.23	0.38	0.46
CAN	0.14	0.16
Acetic acid	0.13	0.14	0.12	0.13

Ensuring energy efficiency improvements and removal of bottlenecks, leading to lower costs at both plants through incremental investments
Achieving product flexibility in order to maximize profit margins through alignment of production to market conditions
Ensuring best possible access to attractive markets (i.e. markets where EuroChem is most competitive on a “cash cost delivered to” basis)
Securing access to competitively priced natural gas

Strengths	Weaknesses
Diversified customer base Economies of scale due to vertical integration Low-cost production mainly due to relatively low, albeit gradually rising, natural gas prices Broad and expanding product range allowing margin maximization Convenient logistics and proximity to transport hubs(for Nevinnomysskiy Azot) Secure long-term supply of gas	Age of equipment results in relatively high maintenance costs and restricts maximum efficiency improvements Transportation costs are relatively high at Novomoskovskiy Azot due to location
Opportunities	Threats
Large-scale project: construction of significant new ammonia capacity with access to low-cost natural gas New product initiatives add flexibility and margin (e.g. compound fertilizers and low-density ammonium nitrate) Further incremental efficiency improvements are still possible at both plants Domestic Russian and CIS market potential Reduction/elimination of import tariff barriers in key target markets	Import trade barriers exist in several target markets Falling/low natural gas prices increase relative competitiveness of previously marginal and unprofitable producers (increase in competitive supply) Gradual domestic increase in gas and energy costs may happen regardless of external natural gas and energy price dynamics New ammonia capacity in low-cost gas regions (e.g. the Middle East) may unfavourably alter the supply-demand balance in the sector

Strengths

Weaknesses

Diversified customer base
Economies of scale due to vertical integration
Low-cost production mainly due to relatively low, albeit gradually rising, natural gas prices
Broad and expanding product range allowing margin maximization
Convenient logistics and proximity to transport hubs(for Nevinnomysskiy Azot)
Secure long-term supply of gas

Age of equipment results in relatively high maintenance costs and restricts maximum efficiency improvements
Transportation costs are relatively high at Novomoskovskiy Azot due to location

Opportunities

Threats

Large-scale project: construction of significant new ammonia capacity with access to low-cost natural gas
New product initiatives add flexibility and margin (e.g. compound fertilizers and low-density ammonium nitrate)
Further incremental efficiency improvements are still possible at both plants
Domestic Russian and CIS market potential
Reduction/elimination of import tariff barriers in key target markets

Import trade barriers exist in several target markets
Falling/low natural gas prices increase relative competitiveness of previously marginal and unprofitable producers (increase in competitive supply)
Gradual domestic increase in gas and energy costs may happen regardless of external natural gas and energy price dynamics
New ammonia capacity in low-cost gas regions (e.g. the Middle East) may unfavourably alter the supply-demand balance in the sector