Fertecon Barrie Bain Presentation

FERTILIZER TRENDS
Prepared for the Nomura Global Chemistry Leaders Conference

by
Barrie Bain
Director, FERTECON Limited
Rome, 22 March 2012
FERTECON/NomuraMar 2012
FERTECON Limited
Formed in1978
Leading provider of fertilizer market
information, prices and analysis
Now part of Informa publishers of Lloyds
List, Agra Europe, Agrow and owners of
Datamonitor
The link with Informa gives FERTECON new
access to data and analysis resources on
agriculture, shipping and freight and energy
A WORLD TURNED UPSIDE DOWN
China the new Europe - high energy prices,

overcapacity, rationalisation, reduced exports
United States the new Middle East - low
energy prices new investment
Sub Saharan Africa The other new Middle East
interest in projects to use surplus gas
The Middle East the new United States increases in energy prices
Russia higher gas prices on the horizon now
higher than US
India the new swing market
A CHANGING MARKET
MARKET BEHAVIOUR
Dealers/distributors becoming risk averse there is a switch to just in
time purchasing
This is pushing price risk both up and down the supply chain, to suppliers
and farmers
NITROGEN
Changing energy costs with US now low cost, China high cost and costs
in Middle East increasing. This will affect future investment decisions
PHOSPHATE
Phosphate becoming the new potash with lots of exploration interest by
junior miners in phosphate rock
POTASH
New entrants could challenge current market structure
FERTILIZER MARKET DRIVERS
There has a been a strong correlation between crop

prices and prices for key crops
Corn, wheat, rice soybeans are key drivers, although
there a differences between regions and nutrients
On the supply side, for nitrogen, oil, gas and coal
prices are key drivers, determining base costs and
where new capacity is located.
For phosphate and potash, the existence of reserves,
investment costs and finance and logistics are key
drivers of new supply
Fertilizer costs are critical for farmers making up 3040% of input costs for many key crops and usually
the largest single component
FERTILIZER USE BY CROP
15%
16%
15%
15%
4%
4%
5%
2%
4%
5%
15%
Wheat
Rice
Corn
Other coarse grain
Soybean
Oil palm
Other oilseed
Cotton
Sugar
Fruit + Veg
Other
Source: IFA
UREA PRICES
550
$/t
FERTECON 2012
500
450
400
NOLA granular (ston)
350
Yuzhnyy prilled
(tonne)
300
2011
2012
PHOSPHATE PRICES
POTASH PRICES
US$/t spot
600
cfr Latin America granular
fob Vancouver std
500
fob Baltic std

fob W Europe gran
400
FERTECON 2012
300
11
12
CROP PRICES
$/bushel
15
Monthly average price received by US farmers

12
soybean
6
wheat
3
corn
Source: USDA
0
03
04
05
06
07
08
09
10
11
12
10
CROP vs FERTILIZER PRICES
11

$/bushel
Monthly average corn price received by US farmers
$/tonne fob
700
urea fob Middle East

DAP fob US Gulf
potash fob
600
DAP
500
potash
urea
400
Source: FERTECON/ USDA

300
3
11
12
12
CROP PRICES - EUROPE

/tonne
600
End month price LIFFE- Paris

500
400
rapeseed
300
200
100
wheat
Source: The Public Ledger - Informa Agra
0
03
04
05
06
07
08
09
10
11
12
13

500
/tonne
/tonne 500
AN UK
400
400
CAN Germany
300
300
200
200
UAN France
100
100
wheat: end-month price LIFFE Paris

Source: FERTECON/ The Public Ledger - Informa Agra
0
0
05
06
07
08
09
10
11
12
14

400
/tonne 400
/tonne
AN UK
350
300
350
300
CAN Germany
250
UAN France
200
250
200
wheat: end-month price LIFFE Paris

Source: FERTECON/ The Public Ledger - Informa Agra
150
150
J 11
J 12
15
DEMAND DESTRUCTION
Demand destruction was seen in 2008 as fertilizer prices rose

above long term correlations with prices of key crops
Many crops did not see the strong prices and fertilizer application
fell sharply on these especially in subsistence agriculture
India was immune to demand destruction in 2008 due to the
subsidy system
Indian subsidy cuts on P+K in the current fertilizer year, together
with higher international prices led to higher retail prices and a
sharp fall in demand
Last weeks budget indicated cuts in P+K subsidies for 2012/13
around 16%
Urea subsidy cut by 1% for local urea and 5% for imported
Government looking to switch subsidy payment system from
producers and importers to local dealers and eventually to
farmers
16
INDIAN SUBSIDY CHANGES

Billion rupees
Subsidies
Imported urea
Budget
2011-12
Revised
2011-12
Budget
2012-13
Change
budget 2010-11 to
budget 2011-12
Change
revised 2010-11 to
budget 2011-12
69.830
138.830
133.980
64.150
-4.850
Indigenous urea
133.080
191.080
190.000
56.920
-1.080
Decontrolled fertilizer
297.069
342.079
285.761
-11.308
-56.318
Total subsidy
499.979
671.989
609.741
109.762
-62.248
17
IMPORTANCE OF INDIA
INDIAN IMPORTS AS SHARE OF WORLD TRADE
Phos acid
DAP
MOP
India
RoW
Urea
Ammonia
0
10
20
30
40
50
million tonnes
18
NITROGEN
New capacity changing market balance
19
UREA SUPPLY INCREASES

UREA EXPORTS 2005, 2010, 2015 AND 2020
million tonnes
50
Less from
Europe & China
40
More from
Europe & China
More from
Africa,
Indonesia,
Malaysia &
Argentina
More from China
30
Other Marginal
No change
Other Dedicated
More from
Egypt
More from CIS
CIS
Less from CIS
20
Less from CIS
Same from
M. East
More from
M. East
10
Middle East
More from
M. East
0
2005
2010
2015
2020
20
NEW NORTH AMERICAN CAPACITY?
Low gas prices in the US have stimulated new

petrochemical projects especially ethylene
However, in the fertilizer sector, firm announcements
have been restricted to debottlenecking and small
expansions
Now, Yara is talking about a major expansion at Belle
Plaine, Saskatchewan
OCI has been awarded state grants to help develop an
ammonia/urea/DEF/UAN project in Iowa
We could see other projects announced, but capital
costs and permitting remain a constraint
21
US UREA COST OF SUPPLY

$/tonne cash cost delivered to Midwest terminal/ex-plant Midwest March 2012
400
375
350
325
300
275
250
225
200
175
150
125
100
75
50
25
0
barge freight
freight to US
other costs
cost of gas /coal
Midwest plant
Middle East plant
Ukrainian plant
Chinese coal-based
plant
22
UREA COST CURVE 2011

Cash Cost in $/tonne fob plant in 2011
400
China
350
Anthracite
Gas
300
250
Steam
Coal
Europe
N.America
India
Russia
200
M. East
Ukraine
150
100
Other Asia
50
Africa
0
0
25
50
75
2011 Production in million tonnes
100
125
150
23
UREA COST CURVE 2015

Cash Cost in $/tonne fob plant
350
China
Gas
300
Steam
Coal
China
Anthracite
Russia
250
N.America
200
India
L.America
West
East
Europe
Ukraine
Other Asia
150
Africa
M.East
100
50
0
0
25
50
75
100
2015 Production in million tonnes
125
150
175
24
NEW AFRICAN CAPACITY?
Availability of low cost associated gas,

currently being flared, is attracting interest in
investment in ammonia/urea in Africa
Project going ahead in Gabon, led by Olam,
agricultural commodities company
Interest in projects in Nigeria, Angola,
Mozambique and elsewhere
With gas costs increasing in MENA region,
Africa looks attractive at $1/mmBtu gas
25
POTASH
New entrants could change market structure
26
POTASH PRODUCTION
Total 60.5 million tonnes KCl - 2011 estimate
Germany
Israel
Jordan
China
FSU
US
Chile
Spain
UK
Brazil
Canada
Capacity 75.8 million t - 80% utilisation
FERTECON / BARINGS POTASH
27
27
POTASH EXPORTS
POTASH EXPORT SOURCES - 2012 estimate
Total - approx 25.6 million tonnes nutrient
Others
Jordan
Canada
Israel
Germany
Belarus
Russia
28
POTASH SUPPLY
Two major supply points Canada and
FSU account for almost two thirds of
world production
This is represented by five producers
and two marketing organisations
Four marketing organisations
Canpotex, BPC, K+S and ICL account
for almost 90% of export sales
(excluding Canada to US)
29
29
NEW POTASH SUPPLY

Two new Canadian producers K+S
and BHP Billiton
Two new mines in Russia by new
producer EuroChem
Two new mines in Latin America by Vale
one in Brazil and one in Argentina
Twenty or more potential projects by
junior miners
30
30
POTASH PRODUCTION
FORECAST WORLD POTASH PRODUCTION 2009-2020
80
million tonnes KCl

Middle
East
75
70
65
Europe
60
55
50
Latin
America
45
40
Asia
35
30
25
FSU
20
15
10
North
America
5
0
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
31
31
POTASH SUPPLY/DEMAND
million tonnes KCl equivalent
120
110
Capacity
100
90
80
70
60
50
40
Consumption
30
20
10
0
81
85
90
95
00
05
10
15
20
32
32
POTASH COSTS
Israel
ex-mine
fob port
Germany
FSU
Canada
50
100
150
200
250
300
$/tonne
33
POTASH CASH COST CURVE EX-MINE

Cash Cost in $/tonne fob mine
250
Germany
Spain/UK
FERTECON ESTIMATES
200
150
Belarus
Canada
100
Jordan
Russia
Israel
50
0
0
10
20
Production in million tonnes KCl
30
40
50
34
PHOSPHATE
New Saudi capacity moving market into surplus
35
SAUDI ARABIA ADDING TO SUPPLY
Maaden project now cranking up towards its 3

million t/y capacity around 15% of global
trade
Second project developing new mining area
given go-ahead
Capacity may have been easily absorbed by
market except for downturn in Indian demand
Extra Saudi supply could be compensated by
lower Chinese exports in 2012
36
ROCK DEVELOPMENTS
Higher prices for phosphates since 2007 has

attracted interest in new projects
Vale Bayovar project in Peru already
operational
Potential projects in Australia, Africa and Latin
America
Projects focussing on just rock lower capex
and quicker to develop than integrated
phosphate fertilizer facilities
New rock supplies could eventually reduce
Moroccan dominance of rock market
37
MIDDLE EAST / NORTH AFRICA
Still a supply risk
38
MIDDLE EAST CRITICAL TO AMMONIA,

UREA AND SULPHUR SUPPLY
Middle East accounts for 32% of urea exports and 15% of

ammonia
Middle East accounts for one third of US urea imports and
20% of US total supply
Middle East supply accounts for 85% of Indian ammonia
imports
35% of new urea capacity located in Middle East
Middle East accounts for 30% of world sulphur exports
Middle East accounts for 90% of Indian sulphur imports and
20% of North African supplies
Yara Libya j-v plant still down
Tunisian phosphate production disrupted through most of
2011
Concern about Iran exports disrupted by financial
sanctions
39
MENA SHARE OF PRODUCTION

Algeria
PRODUCTION 2010
Phos acid
TSP
MAP/DAP
MOP
Urea
Ammonia
0
20
40
60
80
100
120
million tonnes
140
160
Egypt
Libya
Morocco
Tunisia
Bahrain
Iran
Iraq
Israel
Jordan
Kuwait
Lebanon
Oman
Qatar
Saudi Arabia
Syria
UAE
RoW
40
MENA SHARE OF EXPORTS

EXPORTS 2010
Algeria
Egypt
Libya
Morocco
Phos acid
TSP
MAP/DAP
MOP
Urea
Ammonia
0
10
15
20
25
30
million tonnes
35
40
45
Tunisia
Bahrain
Iran
Israel
Jordan
Kuwait
Lebanon
Oman
Qatar
Saudi Arabia
UAE
RoW
41
OUTLOOK
A curates egg good and bad in parts
42
SHORT TERM MARKET OUTLOOK

POSITIVE
Crop prices remain strong
Farmer and dealer purchasing behind normal
No big consumer inventory build
Farmers still need to buy fertilizers for the spring
Delays to major nitrogen projects
NEGATIVE
Last minute rush for product could create bottlenecks
Indian demand destruction has had a negative impact
on P+K
Supply increases in all three nutrients this year
43

1400
$/bushel
$/tonne fob
1300
1200
1100
urea fob Middle East

DAP fob US Gulf
potash fob
1000
Monthly average corn price received by US farmers
900
800
700
600
DAP
500
400
urea
300
200
potash
100
Source: FERTECON/ USDA
0
10
11
12
44
LONG TERM SENSITIVITIES

Population growth
There are signs that population growth is slowing

This could mean that instead of having to feed 9
million people by 2050 the UN medium forecast),
it could be 8 billion just 15% more than today
This could mean slower fertilizer demand growth,
although increased affluence will mean increased
meat consumption, and thus increased demand
for feed grains
45

Genetic modification could limit fertilizer demand growth
longer term
Research underway on transferring the ability of
legumes to fix nitrogen from the atmosphere to corn,
wheat etc, thus reducing nitrogen requirements.
GM techniques could improve nutrient uptake by
crops, lowering potential fertilizer demand growth.
GM could lead to development of crops that require
less nutrient input
However, there will still be fertilizer demand growth
and there is an increased potential for higher value
smart fertilizers
46

Increased recycling
Nutrient recovery at sewerage plants could provide
source of fertilizers
Better use of manures and application of some of the
techniques of organic farming could provide larger
portion of nutrient requirements although this will
remain limited
Organic lobby is increasing in influence could affect
some government policy particularly over
sustainability
47

Africa could see substantial fertilizer demand growth
African fertilizer application the lowest in the world
Increased focus from fertilizer industry, government
international agencies and NGOs on increasing food
production
Investment in distribution schemes and farmer
education to help smallholder farmers
Gates Foundation looking at major development
programmes
Contract farming schemes to produce food for export
could see major increase in fertilizer usage
48
ENVIRONMENTAL SENSITIVITIES
Nitrate directive already constrains nitrogen application in most of

EU
Phosphate application limited by regulations in Scandinavia,
Netherlands
Growing concern on impact of fertilizer run off leading to lawn
fertilizer restrictions in many US states and now proposals in
several states to restrict agricultural fertilizer application
Concern of imbalanced nitrogen application in parts of China and
India
Major opportunity for smart fertilizers and enhanced application
techniques
Greenhouse gas emissions become a major factor already top
of the agenda in EU industry
Increasing market for ammonia and urea for NOx abatement
49

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FERTILIZER TRENDS

Prepared for the Nomura Global Chemistry Leaders Conference

A WORLD TURNED UPSIDE DOWN

China the new Europe - high energy prices,

FERTILIZER MARKET DRIVERS

There has a been a strong correlation between crop

FERTILIZER USE BY CROP

NOLA granular (ston)

cfr Latin America granular

fob Vancouver std

fob Baltic std

Monthly average price received by US farmers

CROP vs FERTILIZER PRICES

CROP vs FERTILIZER PRICES

urea fob Middle East

Source: FERTECON/ USDA

CROP PRICES - EUROPE

End month price LIFFE- Paris

CROP vs FERTILIZER PRICES

wheat: end-month price LIFFE Paris

CROP vs FERTILIZER PRICES

wheat: end-month price LIFFE Paris

Demand destruction was seen in 2008 as fertilizer prices rose

INDIAN SUBSIDY CHANGES

New capacity changing market balance

UREA SUPPLY INCREASES

More from China

More from CIS

Less from CIS

NEW NORTH AMERICAN CAPACITY?

Low gas prices in the US have stimulated new

US UREA COST OF SUPPLY

Middle East plant

UREA COST CURVE 2011

UREA COST CURVE 2015

NEW AFRICAN CAPACITY?

Availability of low cost associated gas,

New entrants could change market structure

Capacity 75.8 million t - 80% utilisation

FERTECON / BARINGS POTASH

FERTECON / BARINGS POTASH

NEW POTASH SUPPLY

FERTECON / BARINGS POTASH

million tonnes KCl

FERTECON / BARINGS POTASH

FERTECON / BARINGS POTASH

POTASH CASH COST CURVE EX-MINE

New Saudi capacity moving market into surplus

SAUDI ARABIA ADDING TO SUPPLY

Maaden project now cranking up towards its 3

Higher prices for phosphates since 2007 has

MIDDLE EAST / NORTH AFRICA

Still a supply risk

MIDDLE EAST CRITICAL TO AMMONIA,

Middle East accounts for 32% of urea exports and 15% of

MENA SHARE OF PRODUCTION

MENA SHARE OF EXPORTS

A curates egg good and bad in parts

SHORT TERM MARKET OUTLOOK

CROP vs FERTILIZER PRICES

urea fob Middle East

Monthly average corn price received by US farmers

Source: FERTECON/ USDA

LONG TERM SENSITIVITIES