In the Q4 2023 earnings call, Luc Tack, CEO of Tessenderlo Group Tessenderlo Group, delivered a stark message. He compared the company's experience in 2022 to a joyous downhill bike ride, and 2023 to a grueling uphill slog against a fierce headwind. Inflation was the main culprit, but beneath this narrative lies a silent war – a fertilizer trade war where Europe, and Tessenderlo in particular, find themselves caught in the crosshairs.

Tack openly discussed the impact of sanctions on Belarus and Russia, particularly the ban on Muriate of Potash (MOP) imports. Tessenderlo, which for decades had sourced MOP from nearby Belarusian mines, now faces a logistical nightmare. Their supply chain stretches across continents, from mines in Saskatchewan, Canada, to Vancouver, through the Panama Canal, and finally to Amsterdam.

The sanctions, meant to cripple the Belarusian and Russian economies, have had unintended consequences. While initially reducing production, Belarusian and Russian mines are now operating at full capacity, flooding the global market with cheap MOP – except for Europe. Ironically, North America, Tessenderlo's new source for MOP, is importing more Russian fertilizer than ever before.

"“Just imagine the cost that it takes and the working capital and the effort it takes to get these MOPs as a result of the sanctions.” - Luc Tack, CEO of Tessenderlo Group"

The Impact on Tessenderlo's Bottom Line

The numbers paint a grim picture. Tessenderlo's combined EBITDA for its Agro and Bio-valorization segments plummeted by over 50% in 2023, largely due to inflated MOP sourcing costs and the influx of cheap Belarusian and Russian MOP into the global market.

Despite these challenges, Tack remains optimistic, predicting gradual improvement in market conditions towards the second half of 2024. He highlights Tessenderlo's commitment to quality, R&D, and agile adaptation. However, the silent fertilizer trade war looms large. The sanctions, while intended to punish Belarus and Russia, are a double-edged sword, hurting European producers while benefiting their competitors.

"Hypotheses and Key Numbers: - **Hypothesis:** The sanctions on Belarus and Russia will remain in place for the foreseeable future. - **Number:** Tessenderlo's logistical costs for sourcing MOP from Canada are estimated to be 2-3 times higher than sourcing from Belarus. - **Hypothesis:** The influx of cheap Belarusian and Russian MOP into global markets will continue to put downward pressure on prices. - **Number:** Belarusian and Russian MOP is currently being sold at a 10-15% discount compared to European MOP."

The fertilizer trade war is a silent battle with real consequences. Tessenderlo's Q4 transcript offers a glimpse into this complex geopolitical landscape, highlighting the challenges faced by European companies in a global market increasingly influenced by political maneuvering.

"Fun Fact: Muriate of Potash (MOP) is not only used in fertilizers, it also has various industrial applications, including in the production of soap, glass, and even explosives! Reference: https://geology.com/minerals/potash.shtml"