Buying urea from Ukraine

An Expert's View about Sourcing in Ukraine

Last updated: 13 Mar 2011

Buying urea from Ukraine (Debunking the myths) Buying urea from Ukraine

General overview.
Recently, we`ve been contacted by hundreds of entrepreneurs from the EU, Asia and North America, who want to import urea from Ukraine. They say that saw lots of advertisements all over the internet to export urea from Ukraine in unlimited quantities. Because we have very good relations with all major Ukrainian urea producing plants and know this market, we decided to debunk some myths and reveal the truth on Ukrainian urea market as well as to teach buyers how to avoid most common mistakes.
As it is well known, Ukraine is one of the leading producers and exporters of nitrogen fertilizers in the world. Currently, chemical industry products amount up to 10% of Ukrainian exports (around 90% - nitrogen fertilizers). Ukrainian share of global mineral fertilizer market is about 10%. Ukraine sells fertilizers to about 70 countries all over the globe (main export destinations are Brazil, Turkey, Mexico, Vietnam and India). Urea amounts to 70% and ammonia nitrate - 20% of Ukrainian nitrogen fertilizer exports.

1 Myth: We can easily buy millions of tons of urea from Ukraine.
Truth: There are 8 big mineral fertilizer producers in Ukraine. 6 of them specialize in production of nitrogen fertilizers and form a foundation of Ukrainian chemical export. Annually they produce only 3,6 million tons of urea. Some part of this urea is sold internally, i.e. on Ukrainian domestic market. Currently, Ukraine exports about 280.000 tons of urea and 130.000 tons of ammonia nitrate per month. The average Ukrainian urea plant exports only around 300.000 tons of urea per year. These figures are very stable and annually fluctuate very slightly. When we see an URGENT!!! order for 2-3 million tons of urea, it is clear that this people sell the air, they’ve never seen the product and never worked in the filed. So, if you see an advertisement that someone can export a few millions tons of urea from Ukraine – for sure this is a fraud. Stay away from these people.

2 Myth: Ukrainian urea is very cheap.
Truth: All you need to produce cheap fertilizers is cheap gas, which is used in production. Till 2004 Ukrainian plants paid almost the same price for Russian gas as Russian producers – around 35-55 USD for 1.000 cubic meters, which is extremely cheap. In 2004 Russia unilaterally terminated contract on gas supply with Ukraine and raised the gas prices 2-3 times. This dramatically increased the urea production costs and consequently the end product price. In addition, every month the Ministry of Economy sets up the indicative price for exports of urea and ammonia. Producers are obliged to sell the products not cheaper than the indicative price. There`s no indicative price for export of ammonia nitrate, but the international supply contract is to be registered with the Ministry of Economy. For example, the indicative price for exports of urea is for about 350 USD per ton. So, if anyone claims to sell you Ukrainian urea or ammonia cheaper than the indicative price – for sure this is a fraud. Stay away from these people.

3 Myth: We will pay by letter of credit and require performance bond.
Truth: Forget it! All urea producers require 100% advance payment and no one accepts performance bond. A plus is that you can visit the plant, meet the people in person and sign the contract.

4 Myth: We will buy urea under CIF terms.
Truth: Forget it! All urea producers require 100% advance payment and no one accepts performance bond. A plus is that you can visit the plant, meet the people in person and sign the contract.

Conclusion.
Ukraine is a net exporter of mineral fertilizers, especially nitrogen fertilizers. Because demand greatly exceeds offer, it will be very hard to get a contract for a foreign company without professional aid of Ukrainian agent. Typical payment methods as well as terms of delivery are not applicable. Promise to export millions of tons of Ukrainian urea at abnormally price  is a myth, which will cost you lots of money and time.

Copyright. Marketplace UkrRos LLC (http://www.kpl.net.ua)


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Posted: 12 March 2011, last updated 13 March 2011

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