The interruption of urea supply from Russia is opening up opportunities for Vietnamese businesses. Illustration: Internet

Opportunity from stress

According to a recent fertilizer industry report by SSI Securities, the resumption of trade between Russia and European countries will take a long time even after the conflict between Russia and Ukraine cools down.

Therefore, urea prices may peak during this time and create short-term investment opportunities. However, urea prices may drop sharply from June onwards as China gradually relaxes export policies and the coal shortage is gradually overcome. With this development, SSI experts believe that urea prices in Vietnam will follow the world price trend, but there may be a certain delay.

Given the impacts on Vietnamese businesses, according to the Vietnam Fertilizer Association (FAV), the world will suffer a severe shortage of fertilizer supply until the Russia-Ukraine tension cools down because of the world's leading producer and exporter of urea and nitrogen position. But on the positive side, the interruption of urea supply from Russia is opening up opportunities for Vietnamese businesses.

Explaining this, FAV said that, according to the designed capacity, Vietnam's urea fertilizer factory includes two factories of the Vietnam Oil and Gas Group and two factories of the Vietnam Chemical Group with a production capacity of more than 2.6 million tons, while domestic demand is only about 1.8 million tons/year.

As a result, businesses can prioritize meeting domestic demand and create more opportunities for export. FAV also said that, in fact, Vietnamese enterprises have grasped the trend, which is reflected in business results in the first months of 2022.

In addition, the Ministry of Agriculture and Rural Development has proposed to convert fertilizers to VAT at the rate of 5%, in order to create a deduction for input-output tax, helping to reduce costs. According to experts of BSC Securities Company, the imposition of tax will have a positive impact on fertilizer production enterprises, when tax refunds on input materials will be refunded.

Contradicting profit forecast

With such opportunities, fertilizer enterprises are inheriting many great opportunities. SSI forecasts that, in the first six months of 2022, the profit of PetroVietnam Fertilizer and Chemicals Corporation (PVFCCo - Phu My Fertilizer - DPM) and PetroVietnam Ca Mau Fertilizer Joint Stock Company (PVCFC - Ca Mau Fertilizer) - DCM) could post impressive growth thanks to low urea prices in the first half of 2021. Meanwhile, profit in the second half of 2022 could fall on a year-on-year basis, assuming a coal shortage in China will decrease and farmers cannot continue to bear high fertilizer prices.

However, SSI estimates the profit for DPM and DCM to reach VND2,798 billion, down 12% and VND1,811 billion, down 5% in 2022, respectively. Mirae Securities Company said, in the first two months of 2022, DPM achieved profit before tax of VND1,422 billion, a sudden increase of more than 10 times over the same period; DCM achieved pre-tax profit of VND735 billion, up 559% over the same period thanks to the positive selling price and volume.

On the contrary, many other businesses have set their profit plans to go up. For example, Southern Fertilizer Joint Stock Company plans to achieve revenue of VND1,750 billion and profit of VND30 billion in 2022. The representative of this business said that the company will continue to maintain strategic markets and traditional markets, expansion and diversification of consumption markets both at home and abroad. At the same time, the Company will consolidate and develop the target market with reasonable policies to develop new markets but still lacks a distribution channel; that focuses on maintaining the domestic market.

On the other hand, many businesses have to "sadly" set a profit plan to "go backwards".

According to the annual report in 2021 of Binh Dien Fertilizer Joint Stock Company (BFC), the business leadership expects the revenue to reach VND6,428 billion, down 81.6%; consolidated pre-tax profit reached VND200 billion, down 53.9% compared to 2021.

This company explained that 2022 is forecast to face many difficulties and challenges in the pandemic situation.

Moreover, the unforeseen development of dry weather and saltwater intrusion will make it a double-whammy for agricultural production and the fertilizer industry. It is forecast that the escalating price of raw materials for NPK fertilizer production will affect the agricultural industry, affecting the operation of NPK fertilizer production and enterprises. The company's overseas market is also subject to fierce competition from products imported from other countries.