Ukraine's National Electricity Regulatory Commission at the open meeting held on Friday decided to cut the ceiling price of natural gas for chemical companies that produce nitric mineral fertilizers by 16.6%, to UAH 1,584.4 (USD 204) per thousand cubic meters of gas (VAT, extra charge, and transportation and supply tariffs not included). The commission's resolution is to take effect from the moment of its publication. The decrease will support both the domestic chemical producers and agrarian complex.
In January 2009 the ceiling price of natural gas for chemical companies that produce nitric mineral fertilizers was settled by NERC at the level of to UAH 1,899.25 (USD 245) per thousand cubic meters of gas, which implies a delivered price for plants about USD 320/tcm. As a result of law fertilizer prices at the beginning of the year and significant decline in production and exports (1H09 fertilizer exports decreased by 39% y/y in Ukraine)), the domestic producers have been lobbying for a USD 205/tcm price at the Ukrainian border.
This news will be positive for Stirol (STIR UZ), which stopped the production of urea, ammonium nitrate and ammonia at the beginning of August and announced that the term of resumption will be clear when the “gas price issue” will be resolved. At the moment Stirol continues shipment of finished goods from the inventory only. Stirol has the lowest rate of gas consumption in the industry – up to 1 thousand cubic meters (European standard) for production of 1 tonne of ammonia, so because of the current gas price decrease, the eventual costs may be reduced by 15%. We believe that STIR will definitely renew the production, but it still unclear the terms of validity of this NERC decision.