GLOBAL FERTILIZER MARKET OUTLOOK DESJARDINS CAPITAL MARKETS COMMODITIES OUTLOOK CONFERENCE TORONTO, MAY 2013 DR. PETER HARRISSON SENIOR CONSULTANT, FERTILIZERS : +44 207 903 2249 : peter.harrisson@crugroup.com : www.crugroup.com
Presentation overview How have fertilizer markets performed in 2012? Factors affecting fertilizer prices in the medium term Agricultural nutrient demand Fertilizer affordability Supply side capacity additions Nutrient outlook 2
CRU is more than N, P & K Our coverage ranges from Al to Zn... 3
CRU Commodity Heat Chart How have the fertilizer markets performed in 2012? Commodity % change 2011-2012 Average nominal price Gold 5.98% Ammonia 5.01% Met Coke 2.37% Potash -3.48% Urea -4.56% Platinum -8.11% Manganese -9.68% Copper -9.82% Silver -11.02% Zinc -11.13% Palladium -11.31% Phosphate DAP -12.62% Lead -13.26% Aluminium -15.30% Sulphuric Acid -15.35% Cobalt -18.51% Tin -18.95% Sulphur -19.58% Alumina -20.65% Iron Ore -22.25% Nickel -23.23% Coking Coal -37.11% Data: CRU. 4 Data CRU
Presentation overview How have fertilizer markets performed in 2012? Factors affecting fertilizer prices in the medium term Agricultural nutrient demand Fertilizer affordability Supply side capacity additions Nutrient outlook 5
Fertilizer demand by region >70% fertilizer consumption is in China, India, USA, Europe and Brazil USA Europe India China Brazil million tonnes nutrient 6 Data CRU
Global crop area forecast Increases are expected across all major crop groups CAGR 2% 1% 3% 7 Data CRU
CRU nutrient demand forecast Forecasting fertilizer demand from crop fundamentals CAGR 2% 3% 4% 8 Data CRU
CRU crop price forecast A new normal suggest a fertilizer affordability US$/tonne 500 400 300 200 100 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Soyabeans Wheat Corn 9 Data CRU
Factors affecting ability to realise demand Who can really afford fertilizer products? Low cost raw materials inputs for domestic production Ability to exploit high global crop prices Ability to export fertilizers to support domestic business Raw materials Crop prices Fertilizer exports 10 Data CRU
What is the problem in India? NBS system introduced in April 2010 Aimed to move farmers to more balanced fertilizer application Currently over application of nitrogen P & K de controlled but urea excluded MRP Urea DAP MOP Mar 2010 Rs 4,830/t Rs. 9,350/t Rs. 4,455/t Apr 2013 Rs. 5,310/t Rs. 24,000/t Rs. 17,000/t Demand 2010 28.6 Mt 11.3 Mt 6.2 Mt 2011 29.4 Mt 10.3 Mt 4.4 Mt 2012 29.6 Mt 9.6 Mt 3.2 Mt 11 Data FAI, CRU
How much does the Indian farmer pay? What is the future for the subsidy regime? Urea DAP MOP India CFR (April 2013) Price to farmer (April 2013) $400/t $520/t $427/t $100/t $330/t $265/t What are the problems? P & K unaffordable in relation to N Farmers pushed towards buying urea over DAP & MOP Reduced P & K application not sustainable in the medium term What are the solutions? Lower import prices Higher or rebalanced government subsidy Stronger Rupee 12 Data CRU Fertilizer Week
Presentation overview How have fertilizer markets performed in 2012? Factors affecting fertilizer prices in the medium term Agricultural nutrient demand Fertilizer affordability Supply side capacity additions Nutrient outlook 13
Nitrogen outlook Low gas price is key to competitive exports US to commission & revamp ammonia facilities; no new urea capacity until 2016 Tight market and high prices in late 2000s trigger surge of new capacity New capacity start date 2012 2013 2014 2015 Export orientated urea capacity in MENA region Asian capacity targeting domestic markets 14 Data CRU Urea Market Outlook
US shale gas revolution has rejuvenated producers margins Henry hub price Closures and mothballing Margins Site costs 15
Urea capacity forecast to 2015 Major capacity additions in China and MENA + 28 Mt + 28 Mt +48 million tonnes of urea by 2015 +48 million tonnes of urea by 2015 16 Data CRU Urea Market Outlook
Phosphate outlook Saudi Arabia joins Morocco as export centre Further capacity growth in Morocco and Saudi Arabia beyond 2015 Lack of rock reserves in India make further overseas investment possible Most new capacity will be vertically integrated New capacity by 2015 DAP/MAP Phosphoric acid Ma aden s advantage: cheap sulphur + cheap rock + cheap ammonia = low cost DAP Rock mine 17 Data CRU Phosphate Fertilizer Market Outlook
Phosphate outlook Demand recovery is expected in 2013 Data CRU Phosphate Fertilizer Market Outlook 18
Potash outlook High prices have had a dampening effect on demand 5% annual growth no net growth 19 Data CRU Potassium Chloride Market Outlook
Potash outlook High prices have had a dampening effect on demand 5% annual growth no net growth rebound Prices have fallen back which should aid demand China H1 2013 contract price down by $70/t to $400/t CFR Forecast is based on return to growth (agricultural requirements win out) Risk that prices will continue to depress growth e.g. India 20 Data CRU Potassium Chloride Market Outlook
Potash outlook Brownfield capacity additions in the near term After 20 years of oversupply, the potash market tightened sharply in 2002 2005 Prices started to impact demand and volumes became erratic Underlying trend has seen operating rates fall back Despite demand bounce in 2013, new capacity will hold O.R. at 2012 level More brownfield expansions to come Greenfield capacity beyond 2017 expected to further lower O.R. Data CRU
Nitrogen points to watch Cereals outlook is positive for N demand N : P/K ratios have risen amid volatile fertilizer prices Major urea capacity additions in MENA & China High cost areas (e.g. Europe) to come under cost pressure Global operating rates projected to fall 86%75% Prices forecast to fall towards SRMC: Urea $350/t FOB Limited addition to ammonia capacity Policy changes are a significant risk to the outlook China export tariffs Indian urea subsidy reform Indian embargo on Iranian exports 22
Phosphate points to watch Indian subsidy issues of major significance Largest global DAP importer Phosphoric acid contract to India agreed at $770/t CFR, down $85/t DAP price agreed at $520/t CFR India How far will demand recover in 2013? Slower capacity growth than N & K OCP in powerful position now joined by Ma aden US market supply stable but concerns over rock resources Prices turning upwards in 2013 if India turns round 23
Potash points to watch China H1 2013 contracts agreed at $400/t CFR, down $70/t Price important to provide market direction to SE Asia and Brazil India is still to agree new contract Demand and price volatility expected to persist Agricultural outlook positive for K demand US corn, Brazil soyabeans, SE Asia oil palm Prices can restrict demand growth Risks around India demand rebound subsidy questions Committed capacity additions point to significant surplus Question mark over future of supplier pricing power with new market entrants 24
Thank you for your attention Dr. Peter Harrisson Senior Consultant, Fertilizers : +44 207 903 2249 : peter.harrisson@crugroup.com : www.crugroup.com MARKET OUTLOOK SERVICES Ammonia Urea Phosphate Rock Phosphate Fertilizer Potassium Chloride Sulphur Sulphuric Acid COST SERVICES Nitrogen Fertilizers Potassium Chloride Phosphate Rock Phosphate Fertilizers MULTI CLIENT SERVICES UAN Ammonium Nitrate Explosive grade ammonium nitrate Animal Feed Phosphates Potassium Sulphates/Nitrates 25