N-P-K Outlook: South West

Transcription

1 7/26/216 N-P-K Outlook: South West July 216 Today s Speaker Neil Fleishman, CFA Head of Research Green Markets Neil Fleishman is the Senior Industry Analyst for Green Markets. Previously, he worked at the Susquehanna Int. Group as a trading desk Sector Specialist covering both the industrial and energy markets for the firm. He also has experience as a portfolio analyst for Evergreen investments. Neil, a thought leader, developed three Green Markets Global Fertilizer Quarterly: Supply & Demand, Production Costs and Pricing reports for Nitrogen, DAP/MAP and Potash. The research reports monitor the macro forces shaping global fertilizer prices across the spectrum of nutrients. Providing the foundation for strategic planning, these detailed market studies are an invaluable asset that informs and confirms decision making in an increasingly volatile and globalized fertilizer market. Along with these models, Neil regularly provides custom consultations on fertilizer supply and demand, and is a featured speaker at numerous industry events. Neil holds a B.S. in Business Administration (Finance concentration) from Drexel University, and is a Chartered Financial Analyst. 1

2 7/26/216 Global Outlook Fertilizer is cyclically over-supplied across all major N-P-K markets. Potash (MOP) Phosphate (DAP/MAP) Nitrogen (Ammonia/Urea) Commodity markets are in a Super-Cycle Main theme: How bad is it and how long can over-supply actually last? Utilization rates are going to continue to decline across major nutrients but are bottoms in sight? Supply-Side Discipline, Cost Curves How Did We Arrive Here? Commodities are cyclical; but this a Super-Cycle Commodity Super Cycle Soy Corn Green Markets North American Price Index Crude Oil WTI Source: Bloomberg 2

3 7/26/216 Macro Risk of a macro economic shock should not be under-stated. 8 Macro Risks /1/26 12/1/26 6/1/27 12/1/27 6/1/28 12/1/28 6/1/29 12/1/29 6/1/21 12/1/21 6/1/211 12/1/211 6/1/212 12/1/212 6/1/213 12/1/213 6/1/214 12/1/214 6/1/215 12/1/215 6/1/216 Source: Bloomberg SPX Volatility Index USD/CNY USD/INR USD/BRL S&P 5 Potash (MOP) Prices down; but major benchmarks now closing in on the cost-curve Potash Prices Potash Brazil CFR mt Potash US Gulf NOLA st Potash Cornbelt Granular st 3

4 7/26/216 MOP Global Cost Curve Cost USD $6 $5 $4 $3 $2 $1 $ July 216 Global Potash Cost Curve mln mt, Company Reports Vale Intrepid Potash K + S Arab Potash Agrium Various Other Mosaic Corp Israel Chemicals SQM Other Chinese Producers Potash Corp Belaruskali Potash (MOP) Utilization rates not likely to climb until post Global Potash Supply and Demand (Base Case) e 216e 217e 218e 219e 22e 221e 222e 223e 224e 225e 8.% 78.% 76.% 74.% 72.% Capacity (Name Plate) 7.% Implied Demand (total) 68.% Utilization, % 66.% 64.% 62.% 6.% 4

5 7/26/216 Potash (MOP) Seeing Price stabilization but meaningful price recovery this year is unlikely. India Settled with BPC at $ : China/India contracts ($315/$332, respectively) Green Markets is forecasting total demand of ~59 mln mt (MOP) for 216; downside risk is prevalent. Potash (MOP) Utilization rates are going to continue to decline. Canadians will most likely continue to show supply discipline. Russian / Belarus: While they ve shown some signs of discipline will likely continue to run all-out when market picks up (New BPC un-likely). Green Fields in focus: K+S, Eurochem, Turkmenistan highly probable to produce by end of decade. Projects likely to ramp-up in a controlled over-supply fashion though. Demand growth will likely remain lumpy but climb long-term. Low price environment good for long-run demand trends. Consolidation: Small deals more likely than big blockbusters. 5

6 7/26/216 Phosphates (DAP/MAP) 6 DAP/MAP Pricing DAP US Gulf NOLA st DAP Cornbelt st MAP Brazil CFR mt 1 Phosphate (DAP/MAP) Lower cost MENA capacity in the drivers seat. $5 July 216 Global DAP/MAP Cash Costs per mt (nutrient) $45 $4 $35 $3 USD $25 $2 $15 $1 $5 $ Capacity mln mt (nutrient), Company Reports ROW India China Middle East (ex Saudi Arabia) North America FSU Latin America Saudi Arabia North Africa 6

7 7/26/216 Phosphates (DAP/MAP) DAP/MAP (Nutrient mln mt P25) % 5. 6.% % 56.% 54.% Capacity Implied Demand Utilization, % % e 217e 218e 219e 22e 221e 222e 223e 224e 225e 5.% Phosphate (DAP/MAP) Prices likely to continue to trend side-ways. Seasonality in phosphates could create a bump on producer discipline but nothing major. Green Markets is projecting global demand for DAP/MAP of 26.8 mln mt (nutrient) for 216. Phosphate producers are arguably the most discipline players right now. 7

8 7/26/216 Phosphate (DAP/MAP) Still all about the mega-projects in Saudi-Arabia. Utilizations likely to start climbing ~22ish; but could happen sooner on additional project delays and cancellations. Some of the largest players Mosaic, OCP and Ma aden continue to signal a disciplined supply approach. Consolidation likely to occur; but with vertically integrated players. Nitrogen (North America Pricing) 7 Nitrogen Prices Urea US Gulf NOLA st Ammonia Tampa CFR mt UAN US Gulf NOLA st 1 8

9 7/26/216 Nitrogen (urea) July 216 Global Urea Cost Curve 3 USD Cash Cost Capacity mln mt North America West Asia Oceania East Asia (Ex-China) South Asia Latin America Africa Eurasia Western Europe China Central Europe, Company Reports, Bloomberg Nitrogen (Global Urea) Global Urea S&D % % % 7.% World Capacity World Demand Capacity Utilization, % % e 216e 217e 218e 219e 22e 221e 222e 223e 224e 225e 226e 6.% 9

10 7/26/216 Nitrogen Global Import/Export Market for Urea could shrink substantially from capacity additions by key importing countries like North America as export availability rises Urea mln mt Urea mln mt World Import / Export Key Market Import Reductions Export Availability Global Urea Capacity e 216e 217e 218e 219e 22e. Nitrogen Nitrogen pricing; led by urea is likely to continue to be pressured into 2H. Fundamentals will remain challenging and capacity will keep climbing. North American Start-ups this year are weighing on sentiment. Export Availability Rising / Import Need Being Reduced. 1

11 7/26/216 Nitrogen 9 North America Nitrogen Imports North America Urea Imports North America Ammonia Imports North America UAN Imports e 217e 218e 219e 22e -2 Nitrogen A large number of projects are still slated to come-online. Majority are in low-cost regions globally so project development hasn t slowed down during low-cost environment past the point of normal delays. China shut-downs are more difficult than market expects. Global capacity additions reduce the need for China to export urea. Global utilizations are un-likely to rise un-less China curtails significant amounts of capacity. Cost curve (in China) has potential to rise if China curtails enough coal capacity (which may also be difficult). India will eventually build capacity / Iran is also a dark horse. 11

12 7/26/216 Nitrogen Enough projects slated to come-online to take North America to selfsufficiency in urea and UAN (by ~22); while reducing ammonia imports. Higher risk of in-land premiums shrinking than producer commentary lets on, particularly in urea. Consolidation in Nitrogen markets likely to continue globally. Pricing power (urea) un-likely to found given fragmentation of the market. Can in-land Premiums Persist? 9 North American Urea Pricing USD In Land Premium $ Urea US Gulf NOLA (st) Urea US Cornbelt (st) Date 12

13 7/26/216 Can in-land Premiums Persist? USD North American UAN Pricing In Land Premium $ UAN US Gulf NOLA UAN US Cornbelt (st) Year India Imports India Imports 1 9 Mln mt Potash (Year End) Potash (Through June) DAP (Year End) DAP (Through June) Urea (Year End) Urea (Through May)

14 7/26/216 Brazil 1 Brazil Imports 9 8 mln mt Potash (Year End) Potash Through May) Urea (Total) Urea (Through April) DAP/MAP (Year End) DAP/MAP (through April) China China MOP Imports Mln mt MOP (Through May) Year End , CNCI 14

15 7/26/216 China 16 China DAP/MAP and Urea Exports DAP (Year End) DAP (Through May) MAP (Year End) MAP (Through May) Urea (Year End) Urea (Through May) , CNCIC Conclusions Utilizations still are still going to decline. Potash: Controlled ramps and producer discipline are the key to turning the cycle around. Phosphates: Cycle could move quick in a couple years given a limited global project list and disciplined players in the drivers seat. Nitrogen: The cycle rests in the hands of Chinese Producer Discipline. Questions? Nfleishman@Green-Markets.com 15