Sales markets

The Group’s products are sold all over the world, mainly in the European Union, and on the domestic market.

The Group’s sales by geographies (by revenue)

* Excluding Poland.
Source: Company data

The parent’s sales by geographies (by revenue)

Source: Company data

In 2016, Grupa Azoty ATT Polymers GmbH, a subsidiary, was the parent’s only customer which accounted for more than 10% of the parent’s total revenue.

Sources of strategic raw materials

For the most part, the Group procures its raw materials, merchandise and services on the domestic and EU markets. Certain raw materials, such as phosphate rock or ilmenite, are purchased from non-EU suppliers. Raw materials supplied by the Group companies, i.e. ammonia and to some extent sulfur, account for a significant share of total raw materials procured by the Group.

In 2016, Polskie Górnictwo Naftowe i Gazownictwo (PGNiG S.A.) was the supplier whose share in the Group’s total cost of raw materials exceeded 10%.

Ammonia

The procurement strategy is based primarily on the optimisation of intragroup supplies (which are executed on market terms). The Group is the largest ammonia manufacturer in Poland and CEE, and operates several ammonia units. It is also one of the largest consumers of ammonia in the region.

Having satisfied its own needs, the Group sells surplus ammonia on the market. The Group’s ability to effectively secure ammonia supplies largely depends on conditions on the fertilizer market and in the natural gas sector.

Benzene

Benzene is mainly delivered under one-year contracts, with supplementary purchases made on the spot market. Benzene is sourced chiefly from domestic and CEE suppliers. The benzene market is largely driven by the situation on the crude oil market and the demand–supply balance on global markets, particularly the level of demand for benzene outside Europe.

Phenol

The procurement strategy is based primarily on supplies from the domestic and the EU markets, with deliveries from outside Europe covering deficit if any. The situation on the phenol market in 2016 was largely driven by developments on the market of benzene (which is the principal component in the phenol pricing formulae) and the volatility of phenol prices reflecting the supply and demand situation on key European markets. The Group secures phenol supplies for its own needs under long-term contracts concluded directly with Europe’s largest producers.

Electricity

The Group purchases electricity from major Polish suppliers, i.e. PGE Obrót S.A., ENEA S.A., and TAURON Sprzedaż S.A. Following a number of tenders for 2016, the Group companies signed electricity supply contracts as part of their existing framework agreements, and ­­­- ­­thanks to the Group’s procurement strategy and the large volume of supplies ­­­- secured electricity prices several per cent lower than in 2015. Given the volatility of the electricity market and its changing legal framework, the Group’s policy was to purchase electricity under short-term contracts.

Phosphate rock

Phosphate rock is purchased under term contracts or on the spot market, chiefly from North African producers, given the mineral’s abundance in the region and the well-developed local sea logistics infrastructure. The situation on the phosphorite market is to a large extent driven by the situation in the fertilizers sector. The Group has in place a joint phosphate rock purchase programme for Grupa Azoty POLICE and GZNF Fosfory Sp. z o.o.

Natural gas

PGNiG S.A. supplied high-methane gas and gas from local sources under long-term contracts. Supplies from other vendors were executed under short-term contracts. In 2016, the Group purchased 70.7% of its natural gas from PGNiG S.A. and the remaining 29.3% from other sources.

Propylene

The bulk of the Group’s purchases of propylene are made under annual contracts, with supplementary purchases made on the spot market. To a large extent, propylene prices are driven by oil prices. The Group has a diversified procurement strategy, based chiefly on supplies from the EU, Russia and other former Soviet Union countries. Supplies from the latter largely reduce the overall cost of propylene procurement.

Sulfur

The Group is the largest producer and consumer of liquid sulfur on the Polish market and in the region. Its sulfur procurement strategy is based on optimising intragroup supplies (from Grupa Azoty SIARKOPOL) and on supplies from the petrochemical industry. This approach gives the Group considerable procurement flexibility, and significantly reduces the risk of supply shortages. The Group also operates the largest logistics facilities in Poland, which is a source of additional competitive advantage. With a centralised sulfur procurement strategy in place (a Group-wide centralised joint purchase programme enabling aggregation of supply volumes), the Group is able to reduce the cost of this raw material.

Potassium chloride

With substantial natural resources and competitive commercial terms, producers from Russia and Belarus are the primary suppliers of potassium chloride. The Group’s procurement strategy is chiefly based on framework agreements, with supplementary deliveries sourced from Western Europe. The Group has a centralised procurement strategy and aggregates supply volumes for Grupa Azoty POLICE and GZNF Fosfory Sp. z o.o.

Coal

The Group purchases coal mainly on the domestic market. Purchasing large volumes of coal of the required quality from geographically remote markets is becoming economically unviable.

On the domestic market, prices of pulverised coal used in the power sector are not directly driven by ARA rates, which only serve as pricing benchmarks for Polish coal producers.

Most of the Group companies purchase coal under short-term contracts with guaranteed prices. Only Grupa Azoty PUŁAWY, due to its coal quality requirements, purchases coal under a long term-contract with negotiable prices. The contracts cover most of the Group’s needs.