Far West Agribusiness Association. January 5, 2015

Transcription

1 Far West Agribusiness Association January 5, 2015

2 Today s Speaker Neil Fleishman, CFA Senior Industry Analyst 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. Most recently, Neil developed three Green Markets Global Supply & Demand Models for nitrogen, DAP/MAP and potash, exclusive new research that gives users unprecedented visibility into global commodity markets. 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.

3 Today s Presentation Brief outline: Global Macro and key themes to watch The N-P-K outlook for 2015 and beyond Major consumers (Brazil, China, India, North America)

4 9/2/ /2/ /2/ /2/2013 1/2/2014 2/2/2014 Major Themes 3/2/2014 4/2/2014 5/2/2014 6/2/2014 7/2/2014 8/2/2014 9/2/2014 US Economy showing relative strength alongside continued global devaluations. Along with the bumper crop; USD Appreciation helping to lower commodity prices EURUSD Cross Rate EURUSD Cross Rate US vs. G10 (Real GDP YoY% mean forecasts) Euro US G10 Area Source: Bloomberg.

5 Major Themes Lower oil prices could impact economic growth in the States. Lower CAPEX = lower jobs Consumers more likely to save or pay down debt Natural gas price outlook unchanged with lower oil. 120 Oil and Gas Prices Crude Oil WTI Natural Gas (Henry Hub) Source: Bloomberg.

6 Major Themes Strong Fertilizer Demand in 2014 but with falling commodity prices. Fertilizer Affordability Becoming Challenged Ratio (NPK Index/Commodity Index) Green Markets North American NPK Index Bloomberg Ag Commodity Index 5 Year Average Ratio Source: Green Markets Research Kennedy Information, LLC, A Bloomberg BNA Business, Bloomberg.

7 Global Outlook The Supply & Demand structure is still set to loosen across all major nutrients. Potash (MOP) Phosphate (DAP/MAP) Nitrogen (Ammonia/Urea) Green Markets has a generally cautious outlook for fertilizer prices into 2015 and sees downside risk to their demand estimates. Demand growth/fertilizer prices for potash and phosphates in 2015 could be challenged by lower crop prices. Demand for nitrogen products likely to stay strong.

8 Potash Outlook Green Markets is projecting global demand for potash of mln mt in We have a neutral view on pricing for We project for solid demand to continue led by international demand but with downside risk particularly in North America. Potash S&D % 72.0% 70.0% 68.0% 66.0% 64.0% 62.0% Capacity (Name Plate) Implied Demand (total) Utilization, % e 2015e 2016e 2017e 2018e 2019e 60.0% Source: Green Markets Research Kennedy Information, LLC, A Bloomberg BNA Business, Bloomberg.

9 11/12/2012 1/12/2013 3/12/2013 5/12/2013 7/12/2013 9/12/ /12/2013 1/12/2014 3/12/2014 5/12/2014 7/12/2014 9/12/ /12/2014 Potash Outlook Potash Prices bounded off lows in 2014, demand was strong as a result of lower pricing. Pricing likely to stay firm in 2015 with the probable loss of the Russian mine. 600 Potash Prices Potash Cornbelt Granular (st) Potash Gulf NOLA Granular (st) 0 Source: Green Markets Research Kennedy Information, LLC, A Bloomberg BNA Business, Bloomberg.

10 Potash (Continued) Potash demand most at risk nutrient in 2015 on lower commodity prices. If Uralkali s mine is lost (Solimansk 2: 2.3 mt ~3% of global capacity), there is plenty of capacity in the system but it is mostly from Canpotex players. Look for demand to remain strong in 2015 at the right price. North American demand likely flat to lower. Low probability of BPC reunion. Key near term supply: K+S and Eurochem. BHP s Jansen still likely probable but not till Potash market to be one of controlled oversupply.

11 Phosphate Outlook The Phosphate market should be well supplied in Green Markets is projecting DAP/MAP demand of mln mt (nutrient) in We have a neutral view on DAP/MAP prices for Global utilization to stay low balanced by swing production. DAP/MAP S&D % 60.0% 58.0% 56.0% 54.0% 52.0% 50.0% Capacity Implied Demand Utilization, % e 2015e 2016e 2017e 2018e 2019e 48.0% Source: Green Markets Research Kennedy Information, LLC, A Bloomberg BNA Business, Bloomberg.

12 Phosphate Outlook Anticipate seasonal price swings but price trend is likely sideways. 600 DAP and MAP prices DAP US Gulf NOLA (st) MAP Brazil Bulk CFR (mt) 0 Source: Green Markets Research Kennedy Information, LLC, A Bloomberg BNA Business, Bloomberg.

13 Phosphate (Continued) Indian demand disappointing in 2014, could be challenged again in 2015 but we anticipate modest growth. MENA producers likely to continue to run at reduced capacity to balance the market. Mosaic production cut on input costs shows market leader producer discipline. Lower commodity market presents challenge to DAP/MAP but radical drop off in demand un-likely. Miss Phos lost production likely to impact US export levels.

14 Nitrogen Outlook Ammonia prices rose in 2014 primarily on global outages with the Civil war in the Ukraine and gas curtailments in Trinidad and Tobago restricting supply. Neutral to cautious view on Ammonia prices in While ammonia prices have likely peaked, continued curtailments in the near term will likely keep ammonia prices high relative to urea Global Ammonia S&D 93.0% 92.0% 91.0% 90.0% 89.0% 88.0% 87.0% 86.0% 85.0% 84.0% 2013e 2014e 2015e 2016e 2017e 2018e 2019e Nameplate Capacity Implied Demand Capacity Utilization, % Source: Green Markets Research Kennedy Information, LLC, A Bloomberg BNA Business, Bloomberg.

15 Nitrogen Outlook Green Markets is projecting for urea demand of ~ mln mt in Capacity will begin to expand outside of China sharply this year with global projects taking shape. Urea likely to be over-supplied for the foreseeable future Global Urea S&D (Ex-China) 2013e 2014e 2015e 2016e 2017e 2018e 2019e 96.0% 94.0% 92.0% 90.0% 88.0% 86.0% 84.0% 82.0% 80.0% 78.0% World Capacity (Ex-China) World Demand (Ex-China) Source: Green Markets Research Kennedy Information, LLC, A Bloomberg BNA Business, Bloomberg.

16 11/12/2012 1/12/2013 3/12/2013 5/12/2013 7/12/2013 9/12/ /12/2013 1/12/2014 3/12/2014 5/12/2014 7/12/2014 9/12/ /12/2014 Nitrogen Outlook Ammonia prices could come back in-line as supply constraints ease. Excess urea supply to likely cap prices. 800 Urea and Ammonia Prices Urea US Gulf NOLA (st) Ammonia Tampa CFR (mt) Source: Green Markets Research Kennedy Information, LLC, A Bloomberg BNA Business, Bloomberg.

17 $350.0 Nitrogen Outlook Cost curve suggests a floor price for urea (~$250 FOB mt China) but commodities markets like oil show floors are tentative and can be moved through. Global Urea Cost Curve 2014 $300.0 $250.0 $200.0 $150.0 $100.0 $50.0 Western Europe Oceania China Central Europe East Asia (Ex-China) South Asia Eurasia Latin America North America Africa West Asia $ Source: Green Markets Research Kennedy Information, LLC, A Bloomberg BNA Business, Bloomberg.

18 Urea mln mt The effect of global expansion in nitrogen With capacity expanding global, the nitrogen market will see increased localization Global Urea Import/Export Balance of Key Regions Import Levels Export Levels Source: Green Markets Research Kennedy Information, LLC, A Bloomberg BNA Business, Bloomberg.

19 North American Nitrogen Projects We are tracking ~30 potential ammonia projects, ~25 potential urea projects and ~10 UAN projects. North America is currently poised to become self-sufficient in both urea and UAN while ammonia imports could drop by ~2/3rds. More projects will likely go ahead than the market expects. Key projects that are proceeding include CF Industries, Dakota Gasification, OCI, Koch Nitrogen, and CHS Inc. Other projects we are watching with either a high or medium probability of proceeding include Midwest Fertilizer, Magnida, Ohio Valley Resources, Northern Plains Nitrogen and IFFCO.

20 North American Nitrogen S&D North American Urea and Ammonia imports set to drop sharply in the coming years. Urea e 2016e 2017e 2018e 2019e Capacity Implied Demand Import / Export Levels Ammonia Capacity Implied Demand Import / Export Levels Source: Green Markets Research Kennedy Information, LLC, A Bloomberg BNA Business, Bloomberg.

21 Brazil on Pace for Record Imports in 2014 Mln mt We expect generally strong imports in 2015 but there is acreage and weather related risk to our forecasts Brazil Fertilizer Imports (through 10/30) Source: Ministerio da Industria e do Comercio Exterior.

22 Mln mt Imports Subsidy/MRP (INR) India imports continue to disappoint A clear trend toward lower consumption/imports with current NBS scheme Indian Fertilizer Imports vs. Subsidy Levels DAP NBS Potash NBS Urea MRP Potash Imports DAP Imports Urea Imports Calendar Year 0 Source: Government of India Department of Fertilizers

23 India imports continue to disappoint India once again is an unpredictable buyer: Late monsoon, coupled with weak INR, and unbalanced subsidy scheme India Import Projections for Potash DAP Urea Source: Government of India Department of Fertilizers

24 India (Continued) Change to the NBS system is hopeful for 2015 but challenging (potential for Urea to be added to NBS System) imports could continue to disappoint. Monsoon now underway, driving imports into 2015 but not expecting anything dramatic USD/INR Cross USD/INR Cross 10 0 Source: Bloomberg

25 China Potash Imports Strong imports in 2014, we expect strong demand again in China MOP Imports (10/31/2014) China MOP Imports Source: China Customs General Administration, China Ministry of Commerce, Green Markets Research

26 1/1/2007 7/1/2007 1/1/2008 7/1/2008 1/1/2009 7/1/2009 1/1/2010 7/1/2010 1/1/2011 7/1/2011 1/1/2012 7/1/2012 1/1/2013 7/1/2013 1/1/2014 7/1/2014 China DAP/MAP Exports Overcapacity: Flat rate of RMB100/mt for China Phosphate Exports, Export taxes vs. DAP China DAP/MAP Exports Gulf DAP Prices China Export Tax Window DAP/MAP (Source: China Ministry of Commerce) 2014 Rest of Year 15% + 50 RMB Flat May 16 to Oct 15 50RMB 2013 DAP (CNY) MAP (CNY) Rest of Year Progressive level May 16 to Oct 15 5% 400 China Tariff Window Rest of Year 110% Progressive level Jun, Jul, Aug, Sep 0 Source: China Customs General Administration, China Ministry of Commerce, Green Markets Research

27 2/28/2005 7/31/ /31/2005 5/31/ /31/2006 3/31/2007 8/31/2007 1/31/2008 6/30/ /30/2008 4/30/2009 9/30/2009 2/28/2010 7/31/ /31/2010 5/31/ /31/2011 3/31/2012 8/31/2012 1/31/2013 6/30/ /31/2013 4/30/2014 China Urea Exports Overcapacity in China: Flat rate for 2015 of RMB80/mt Chinese Urea Exports (Cumulative) vs. Tariff Window Rest of Year 15% + RMB40/t Jul-Oct RMB 40 /t China Urea Exports China Tariff Window Black Sea Urea Price 2013 Rest of Year 75% Jul-Oct 2% 2012 Rest of Year 110.0% Jul - Oct 7.0% Source: China Customs General Administration, China Ministry of Commerce, Green Markets Research

28 North America Acreage assumptions for 2015 base case: ~88 mln acres for corn and ~80 acres for soy. Bumper Crop last year and soil nutrient depletion could arguably keep application rates high. Phosphate and potash demand could taper off if farmers look to skip applications if soil conditions allow (downside risk to our estimates). 600 Producer Margin (USD/Acre) Producer Margin (USD/Acre) Producer Margin (USD/Acre) 100 Source: Bloomberg

29 North America We expect logistics to be challenging again this year. Driver Shortages, potential rail delays, weather, all probable again. Lean Inventories compound this problem. Plan for longer lead times.

30 North America We project phosphate and potash demand to be flat to lower Y/Y for Nitrogen demand should remain but imports will start to drop late in 2015 on capacity increases 12 North America Import/Export projections Urea Ammonia Potash DAP/MAP Source: Green Markets Research Kennedy Information, LLC, A Bloomberg BNA Business, Bloomberg

31 1/31/2000 1/31/2001 1/31/2002 1/31/2003 1/31/2004 North America 1/31/2005 1/31/2006 1/31/2007 1/31/2008 1/31/2009 1/31/2010 1/31/2011 1/31/2012 1/31/2013 1/31/2014 Potash Inventory ~1.5 mln mt, well below average levels. 4.0 TFI North American Inventory (Potash) Inventory 5 Yr Avg 10 Yr Avg Source: The Fertilizer Institute

32 1/31/2001 1/31/2002 1/31/2003 1/31/2004 1/31/2005 1/31/2006 North America 1/31/2007 1/31/2008 1/31/2009 1/31/2010 1/31/2011 1/31/2012 1/31/2013 1/31/2014 DAP/MAP Inventories ~0.55 mln mt; in-line with recent levels TFI North American DAP/MAP Inventories TFI NAM Inventories 5 Yr Average 10 Yr Average Source: The Fertilizer Institute

33 Conclusions Input (N-P-K) pricing: Potash (Firm), Phosphates (Neutral), Nitrogen (Bearish). Demand growth could be constrained by lower commodity prices in 2015, but radical drop-offs in total global consumption un-likely. North American Potash, Phosphate demand most at risk. Watch for changes in Indian NBS (could impact global pricing).

34 About Green Markets Green Markets provides an in-depth look at the major factors shaping today s fertilizer industry, including market reports, tenders, and industry news and fertilizer spot prices. With two weekly periodicals, Green Markets and Dealer Report, Green Markets combines quality reporting with expert coverage of developments across the industry. In addition to weekly reporting, Green Markets publishes exclusive research on Global Supply & Demand for Nitrogen, DAP/MAP and Potash, and hosts a selection of highly regarded live interactive events throughout the year.

35 Contact Jonathan Wentworth-Ping, Director, at or call Neil Fleishman at or call