Nitrogen segment

Overall sales volumes of nitrogen fertilizers increased 23.1% y-o-y in 2012, primarily as a result of higher production following the launch of our new urea line at PhosAgro-Cherepovets.

Our Nitrogen segment includes the assets of PhosAgro-Cherepovets (formerly part of Cherepovetsky Azot), which produces ammonia, ammonium nitrate, ammonium nitrate-based fertilizers and urea, and Agro-Cherepovets, which produces urea from the ammonia produced by PhosAgro-Cherepovets.

The ammonia we produce is used internally for the production of phosphate-based and nitrogen fertilizers. Ammonia production increased8.5% y-o-y compared to 2011, and most of it was consumed withinthe group to support urea production volumes starting from the secondhalf of 2012. This meant that our self-sufficiency in ammonia declinedto 88% in 2012 compared to 92% in 2011.

The main driver of the higher overall production and sales of nitrogen fertilizers in 2012 was the launch of our new 500 kt per annumurea production line in the second half of 2012, which more than doubled our overall urea production capacity to 980 kt per annum. Test production started in July 2012, and urea production and sales volumes were up significantly compared to 2011, with production increasing 57.8% y-o-y to 703.1 kt, and sales up 62.1% y-o-yto 717.6 kt in 2012.

Following the launch of the new urea plant, we entered into two new contracts for the sale of urea with Transammonia AG (Switzerland),for the period from July 2012 to June 2013, and with Keytrade AG (Switzerland), for the period from September 2012 to August 2013, which currently cover approximately 60 percent of our exports of urea. The majority of our remaining urea sales take place on the spot market or based on short-term quarterly sales contracts. We believe thatthis balance ensures a significant degree of stability in our urea sales volumes and prices based on market dynamics, while at the same time enabling us to benefit from the flexibility that spot sales provide.

Production and sales of ammonium nitrate (AN) decreased y-o-y by 31.0%and 33.3% respectively in 2012, primarily as a result of our increased useof internally-produced ammonia for the production of urea and NP. Ourdecision in 2012 to focus on urea and NP instead of AN production wasdriven by the higher margins these products earned compared to AN.

Production Volumes kt
2012 2011 Change y-o-y
Nitrogen fertilizers
AN 314.6 455.7 (31.0%)
NP 80.3 0.0
Urea 703.1 445.6 57.8%
Sales Volumes kt
2012 2011 Change y-o-y
Nitrogen fertilizers
AN 297.9 446.8 (33.3%)
NP 79.4 0.0
Urea 717.6 442.6 62.1%