Fertilizers outlook

1. Global Fertilizer Market Outlook
Scotiabank Commodities Outlook Conference
Toronto, January 2013
Dr. Peter Harrisson
Consultant, Fertilizers
: +44 207 903 2249
: peter.harrisson@crugroup.com
: www.crugroup.com

2. 2
Presentation overview
 Introduction to N, P & K markets
 How do agricultural market interact with fertilizer markets?
 Fertilizer affordability in India
 Supply side response to high prices
 Points to watch across N, P & K
 Nutrient outlook in summary

3.  Nitrate and ammonium ions are highly mobile in soil – must be
regularly replenished
 Chinese capacity uses coal as ammonia feedstock; ROW predominantly
uses natural gas
 Feedstock typically represents 50‐70% of ammonia production cost
Nitrogen primer
The market in 2011
3
China 32%
India 8%
USA 6%
Russia 8%
Indonesia 3%
Ukraine 3%
Trinidad 3%
Canada 3%
Gulf States 8%
ROW 32% ROW 31%
China 31%
India 15%
USA 11%
EU 9%
Brazil 3%
Data – CRU

4.  75% of identified phosphate rock reserves are in Morocco (IFDC 2011
estimate)
 Producers may be vertically integrated or purchase phosphate rock and/or
phosphoric acid
 China and USA are largely self‐sufficient, India is major importer
Phosphate primer
The market in 2011
4
China 33%
USA 14%
Morocco 15%Russia 5%
Tunisia 4%
Brazil 3%
China 30%
India 16%
USA 10%
Brazil 9%
Saudi
Arabia 3%
ROW 24% ROW 35%
Data – CRU

5.  Cereals require less K than N & P, some crops like sugar cane and oil palm
require high K
 Little overlap between areas of high production and areas of high demand
 Canpotex and BPC handle 60‐70% of seaborne trade
Potash primer
The market in 2011
5
Canada 35%
Russia 17%
Belarus 11%
USA 16%
Brazil 15%
China 19%
Germany 7%
Israel 6%
China 6%
Jordan 4%
India 8%
EU 11%
Indonesia &
Malaysia 9%
ROW 14%
ROW 22%
Data – CRU

6. 6million tonnes nutrient
0
5
10
15
20
N P K
0
5
10
15
20
N P K
0
5
10
15
20
N P K
0
5
10
15
20
N P K
0
10
20
30
40
50
N P K
Brazil
USA
Europe
India
China
China
28%
India
16%
USA
12%
EU
10%
Brazil
6%
ROW
28%
Total fertilizer demand
by region
Fertilizer demand by region
>70% fertilizer consumption is in China, India, USA, Europe and Brazil
Data – CRU

7. Poor harvest pushed up crop prices in 2012
7
US drought
diminishes corn
crop to a 6 year
low
Drought also hits
South American
soyabean harvest
Adverse spring and
harvest weather
impacts on European
wheat crop
High agricultural prices
Up 40% Up 30% Up 30%
Data – CRU, USDA

8. 8
United States
2012 defined by drought
 At the peak 80% of USA abnormally dry with >60% in drought
0
20
40
60
80
100
%
US drought area
Data – USDA

9. 9
What is the impact on 2013?
 High corn plantings to trigger high application, particularly for N
 Increased crop areas expected to outweigh nutrient build up in soil
APPARENT DEMAND
H1 2012 vs. H1 2011
Urea/Ammonia -2%
DAP -7%
MOP -28%
United States
2012 defined by drought
0
10
20
30
40
50
60
70
80
May Jun Jul Aug Sep Oct
%
Corn crop rating (% Good-Excellent)
2011 2012 5-yr ave
Data –CRU, USDA

10. 10
 Heat wave hit South American
soyabeans
 Brazil & Argentina output down 10‐
20%
 Drought in the CIS affected wheat
crop
Ag prices may have peaked, but are expected to remain above
historical levels for 2013 and beyond
Problems have not just been in the USA
75
100
125
150
175
Jan12
Feb12
Mar12
Apr12
May12
Jun12
Jul12
Aug12
Sep12
Oct12
Nov12
Dec12
IndexJan12=100
Crop price index
Wheat Corn Soyabeans
Data – CRU

11. 50
100
150
200
250
300
350
400
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Jan2006=100
Fertilizer Affordability Indices
Index of Crop Prices
Index of Fertilizer Prices
Correlation 80%
2003-06 “normal” but balances
tightening & prices trending up
Markets move to a new
“normal”
Drought in the
Americas
Fertilizer prices follow crop prices
Have crop and fertilizer markets moved to a new “normal”?
11
Data – CRU

12. 50
100
150
200
250
300
2010 2011 2012
Jan2006=100
Fertilizer Affordability Indices
Crop price index Urea price index DAP price index MOP price index
12
N, P & K can behave very differently
Fertilizer markets have not responded to crop prices rises in 2012
Data – CRU

13. 13
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
Urea
• Rs.4,830/t
• Rs.5,310/t
• 28.6 Mt
• 29.4 Mt
• 29.6 Mt
DAP
• Rs.9,350/t
• Rs.24,000/t
• 11.3 Mt
• 10.3 Mt
• 9.6 Mt
MOP
• Rs.4,455/t
• Rs.17,000/t
• 6.2 Mt
• 4.4 Mt
• 3.2 Mt
2010
2011
2012
Mar 2010
Dec 2012
Retail price
Demand
(million tonnes product)
Indian subsidies
Data – FAI, CRU

14. 14
What are the solutions?
 Lower import prices
 Higher or rebalanced government
subsidy
 Stronger Rupee
How much does the Indian farmer pay?
What is the future for the subsidy regime?
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
Urea DAP MOP
India CFR
(December 2012)
$400/t $580/t $490/t
Price to farmer
(December 2012)
$100/t $400/t $300/t
Data – CRU Fertilizer Week

15. 50
52
54
56
58
60
2011 2012 2013 2014 2015
million tonnes DAP
Existing China Saudi Arabia Morocco
15
150
160
170
180
190
200
210
220
230
2011 2012 2013 2014 2015
million tonnes urea
Existing China MENA ROW
50
55
60
65
70
75
80
85
90
2011 2012 2013 2014 2015
million tonnes KCl
Existing Canada Russia ROW
26%
additional
capacity by
2015
53%
share of new
capacity in
Canada
MOPDAPUrea
28%
additional
capacity by
2015
57%
share of new
capacity in
China
9%
additional
capacity by
2015
Morocco
No net
capacity
gain outside
China, Saudi
Arabia &
Morocco
Supply side response to high prices
Capacity addition greatest in N & K
Data – CRU

16. 16
Nitrogen outlook
Low gas price is key to competitive exports
2012
2013
2014
2015
Tight market and high
prices in late 2000s trigger
surge of new capacity
US to commission &
revamp ammonia
facilities; no new urea
capacity until 2016
Export orientated
urea capacity in
MENA region
Asian capacity
targeting
domestic markets
New capacity
start date
Data – CRU Urea Market Outlook

17. -
5
10
15
20
2012 2013 2014 2015
milliontonnesurea
China MENA Latin America ROW
17
+48 million tonnes of urea by 2015
+ 28 Mt
Urea capacity forecast to 2015
Major capacity additions in China and MENA
Data – CRU Urea Market Outlook

18. 18
List of Potential New ProjectsUS Import Dependence
15.8 Mt
of major N fertilizers
imported
in 2011
OCI / Iowa Fertilizer Company (IFCo) (2015)
Summit’s Texas Clean Energy Project (TCEP) (2015)
Ohio Valley Resources (OVR) (2016)
CHS Inc (2017)
JV between IFFCO, KIT, and a Canadian partner (2017)
Dyno Nobel / Incitec Pivot (2018)
Rentech Nitrogen (2013)
PCS (2014)
CF Industries (2015)
Yara (2016)
+ expansions and re‐starts
5.5 Mt
urea
US shale gas
Can the US move towards Nitrogen self‐sufficiency?
 3.0 million t/y N capacity added by 2015; 4.0 million t/y by 2017
Data – CRU Urea Market Outlook

19. 19
DAP/MAP
Phosphoric acid
Rock mine
New capacity
by 2015
Phosphate outlook
Saudi Arabia joins Morocco as export centre
Most new capacity
will be vertically
integrated
Further capacity growth
in Morocco and Saudi
Arabia beyond 2015
Lack of rock reserves in India
make further overseas
investment possible
Ma’aden’s advantage: cheap
sulphur + cheap rock + cheap
ammonia = low cost DAP
Data – CRU Phosphate Fertilizer Market Outlook

20. 80
90
100
110
120
China India Brazil USA ROW
P2O5Demand-Index2011=100
20
Phosphate outlook
Demand recovery is expected in 2013
2011
2012
2013
2011
2012
2013
2011
2012
2013
2011
2012
2013
2011
2012
2013
Data – CRU Phosphate Fertilizer Market Outlook

21. 20
30
40
50
60
70
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
million tonnes KCl
KCl deliveries
21
Potash outlook
High prices have had a dampening effect on demand
no net growth
Data – CRU Potassium Chloride Market Outlook

22. 22
Potash outlook
High prices have had a dampening effect on demand
• 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
30
40
50
60
70
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
million tonnes KCl
KCl deliveries
no net growth
Data – CRU Potassium Chloride Market Outlook

23. 23
50
60
70
80
90
2011 2012 2013 2014 2015
million tonnes KCl
Existing Brownfield Greenfield
15% of additions are in greenfield
85% of additions are brownfield
 Capacity forecast indicates extra 17million t/y capacity by 2015
 Major greenfield projects are under construction with commissioning
after 2015
Potash outlook
Brownfield capacity additions in the near term
Data – CRU Potassium Chloride Market Outlook

24. 24
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
Nitrogen points to watch

25. 25
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 not yet agreed but recent spot sale at $535/t CFR India (Jan 2012)
 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
Phosphate points to watch

26. 26
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
Potash points to watch

27. 27
Demand – stable and supported by cereal outlook
Supply – growth in export capacity in MENA
Prices – urea declining to 2015
N
Demand – USA, Brazil and SE Asia are positive but India is still a risk
Supply – new capacity is here with more to follow
Prices – lower in 2013, large capacity additions pushing down further
K
Demand – better than 2012 but dependant on India returning
Supply – Ma’aden increasing production
Prices – weakened in 2013 then recovering with improved demand
P
Nutrient outlook in summary

28. 28
MARKET OUTLOOK SERVICES
 Ammonia
 Urea
 Phosphate Rock
 Phosphate Fertilizer
 Potassium Chloride
 Sulphur
 Sulphuric Acid
Dr. Peter Harrisson
Consultant, Fertilizers
: +44 207 903 2249
: peter.harrisson@crugroup.com
: www.crugroup.com
Thank you for your attention
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