Multiple production deficits over the past decade have pulled grain inventories well below their historical average. We believe this situation is not sustainable, and that it provides little margin for error in meeting the expected rising world demand for grain. Growth in crop production must nearly double the historical average in 2012/13 crop year just to keep inventories at their current low levels – and must triple that average to start increasing grain supplies to levels closer to the long-term average.
Rising demand for food places considerable pressure on global supplies of a number of key crop commodities. The stocks-to-use ratios for corn, rice, sugar and palm oil are well below historical levels. Ratios for wheat and soybeans are similar to the historical average. Alleviating this pressure on crop supplies will require a sustained effort in improving crop productivity.
Agriculture commodity prices remain well above historical levels, which is a reflection of the tight supplies and the need for continuous improvement in crop productivity. Higher prices for these crops more than offset farmers’ increased input costs, resulting in record or near-record returns in most growing regions. This economic incentive, and the need for nutrients to achieve higher crop yields, are expected to support strong global demand for fertilizer in 2012.
According to USDA report, 56 percent of the US corn is currently rated as good to excellent, down 7 percent from last week and 12 percent lower than this time last year. USDA currently forecast the 2012/13 US corn yield at 166 bu/ac given the ideal weather conditions at the beginning of the planting season. However, as in the past years this early estimate may turn out to be too optimistic as a significant portion of the US corn crop is currently undergoing stress from lack of moisture and high temperatures. Reports indicate soil is extremely dry in many locations in the US, which is increasing corn’s moisture stress on a daily basis. The corn crop could face significant pollination problems if this stress is not relieved soon.
As the US corn crop has developed, yield estimates have been cut by private consultants to levels well below USDA’s current forecasts. If the current dry conditions continue, further yield cuts are expected. With reduced yield and production expectations, the corn stocks-to-use ratio is expected to remain at historically low levels.
Rising food consumption will continue to be a major challenge for China’s government and its millions of farmers. Over the past decade, while total production has risen significantly, the increase has been unable to keep pace with demand. Over the past few years, China has significantly increased its corn imports. In 2011/12, it is expected to import record quantities (surpassing 1994/95) to meet its immediate needs – due to strong growth in consumption, reduced stocks and inadequate domestic production. Imports are expected to reach 5-6 million tonnes and are expected to exceed this level in 2012/13. China’s soybean imports are expected to increase to a record 57 million tonnes in the 2011/12 crop year as a result of increased consumption and farmers shifting acreage from soybean to corn.
Even with India’s per capita consumption presently at low levels, growth in food demand is driving food price inflation at a rapid pace, and creating major concerns. We expect the pressures on food production will continue to intensify. India’s crop yields are well below those of other countries in Asia and they are also more variable. Proper fertilization is extremely important to increase yields and reduce variability, particularly potash during years of greater crop stress.
Increasing corn and soybean production in South America has led to higher exportable surpluses of both crops. Ten years ago, South American soybeans accounted for 44 percent of the world’s export supply. In the 2011/12 crop year, that share is expected to reach 55 percent in spite of the reduced production from this region due to unfavorable weather conditions. South America’s share of the world corn export market grew from 18 percent to approximately 30 percent over the past 10 years. Argentina is the top exporter in the region and second in the world behind the US. Most of Brazil’s corn production has typically been consumed by its domestic livestock. Exports could rise significantly this year with large increases expected in Safrinha (second-crop acreage) corn production.
Brazil is expected to increase 2012 acreage of each of its top three crops – soybeans, corn and sugar – due to supportive economics. Growing world demand for oilseeds, particularly by China, has led to a steady increase in soybean acreage in Brazil. Strong local demand for ethanol produced from sugar cane and rising world demand for sugar are supporting increased acreage of this crop. Strong sugar prices over the past few years encouraged Brazilian farmers to defer replanting of sugar cane in an attempt to maximize profits. After a significant decline in yields last year, they are focusing on replanting this year. Corn area is being supported by a 20 percent increase in Safrinha due to the early soybean harvest as well as favorable economics.
World potash fertilizer consumption has grown significantly over the past 10 years, driven primarily by developing markets in Asia and Latin America. Despite reduced consumption in India, we expect 2012 will be a record year for global potash fertilizer consumption. This is primarily due to growth in markets such as China, Brazil and Southeast Asia.
After remaining on the sidelines through the end of 2011 and the beginning of this year, fertilizer dealers are now securing product to meet strong demand at the farm level. Potash shipments have picked up significantly in the second quarter and we expect that will continue in the second half of the year. Although the lull in purchasing in the first quarter has resulted in lower estimates of annual global shipments, we continue to believe that demand will be more robust as 2012 progresses, with shipments estimated to be in the range of 53-56 million tonnes.
In the US, farmers prior to the mid 1990s applied potash at rates close to the scientifically recommended level. However, while application rates have been relatively steady over the last decades, the amount of potassium removed from the soil has been increasing due to higher crop yields. This has resulted in soil potassium levels being drawn down in many areas. In the future, s oil fertility must be well maintained to support the high level of production needed to meet the world’s increasing demand for food. We believe US farmers will need to increase potash applications to replenish nutrients withdrawn by large crops.
As yields continue to increase and fertilizer rates remain relatively unchanged, soil test levels for potassium have trended lower in many regions. This can have long term consequences as potash releases soluble potassium (K), which is essential to all forms of plant and animal life. In plants, potassium improves root strength, enhances resistance to disease and insects and supports water retention. Potash also improves the color, taste and texture of produce.
The six states presented on the left of this chart account for approximately half of US potash fertilizer consumption. Potash removal in four of these six states exceeded application during the period 2005-2010, significantly drawing down the soil’s potassium nutrient level. This application shortfall can be masked in the short term by favorable growing conditions and nutrients resident in the soil but cannot be sustained in the long run. It is not possible to take more out of a soil than is put into it without degrading its quality. Yields have declined in some of the states where soil potassium levels have fallen. While many variables impact yield, the fact is that crop stresses become more pronounced if soil fertility is not adequate.
Soil potassium levels are trending downward and resulting in more soils testing below critical levels established by land-grant universities in their respective states. Therefore, declining soil test levels are resulting in more soils that would be responsive to potash fertilization. This also illustrates that a substantial amount of US states (specifically the south and southeast) have a history of under-fertilization.
One of the major impediments to improvement of India’s lagging crop yields is its under-application of potash relative to nitrogen. Farmers were making strides to improve this ratio until 2011 when delayed contract settlements limited potash availability. More recently, a weakened Rupee and fertilizer subsidy changes that subsidize nitrogen heavily, compared to potash and phosphate, are leading to higher retail prices for potash and deferring demand in the short term. We view this situation as a short-term issue, as the medium- to long-term consequences on India’s food production of under-applying potash and phosphate are too significant. Given projected potash consumption levels for 2012, the nitrogen-to-potash ratio is expected to fall back to 6:1. This is not sustainable in the face of the need to improve lagging crop productivity and meet the future food needs of India’s rising population.
Other Asian countries, particularly Malaysia and Indonesia, have enjoyed decades of strong economic growth and are rapidly increasing their crop production. With no domestic potash production and growing demand, their imports have almost doubled over the past decade to approximately 9 million tonnes. Prices for potash-intensive crops, particularly oil palm, are well above the historical average, providing the incentive for growers to increase application rates. Solid returns for crops such as oil palm, rice, fruits and vegetables are supporting potash demand in other Asian countries, where imports are projected to continue to be strong.
Over the last 10 years, global potash consumption grew annually by approximately 3 percent, surpassing growth rates for the other primary nutrients. Most of this growth was in offshore markets where potash has historically been under-applied as measured against scientifically recommended levels. Potash shipments have fallen below the long-term trend following the global economic downturn and the recent deduction in India’s potash demand. We believe this is a temporary move and that the scientific requirements to meet rising food production will drive increased demand in the years ahead.
While some observers believe new potash supply could outpace global need in the coming years, what is often overlooked is the challenge for operating mines around the world to achieve full operational capability. For most of 2011, reported geological, logistical and operational issues constrained the industry’s ability to meet underlying demand, highlighting the need for new capacity. With the long lead time required for developing new supply, we believe the industry could be challenged to meet the world’s rising potash demand in the years ahead. This supports the need for long-term investment in operational capability to meet growing demand. We believe global potash operating rates will remain at historically high levels over the next five years.
While brownfield projects can be developed at a considerable discount to the cost of greenfield mines, both the cost and time required to complete them have increased. We believe many of the less complex projects have been completed, and expect some brownfield projects under construction today may take up to seven years to achieve full operational capability. The rising cost of building new capacity also reflects the current pressure on the materials and skilled labor needed to complete these projects. We believe competition in Western Canada for engineers and contractors will continue to increase due to announced construction projects in a broad range of resource sectors.
Market prices for phosphate rock, sulfur and ammonia (the primary inputs for production of solid phosphate fertilizers) have increased significantly over the last five years. Rock prices more than tripled since 2006, resulting in higher production costs for the approximately 30 percent of global producers who rely on purchased rock. Higher prices for ammonia and sulfur have further elevated production costs. Historically, the price of solid phosphates has closely followed the costs of non-integrated producers.
We expect relatively tight phosphate market conditions in 2012 due to strong projected demand and limited capacity additions. Should the anticipated projects ramp up in the medium term (post- 2012), we expect the market will be balanced with new demand being met with new capacity. The Ma’aden project in Saudi Arabia, with a capacity of 2.9 million tonnes of DAP per year, had its initial production in mid 2011, following a lengthy series of delays in its start-up. Following the initial start up, a number of challenges have reportedly contributed to a slow ramp up. Production this year is expected to be approximately half of its capacity, with full production not expected until at least 2013. In Morocco, OCP plans to increase phosphoric acid capacity in 2013 to utilize its excess granulation capability. Phosphoric acid capacity additions in China are associated with new solid phosphate capacity.
Global demand for solid phosphates rose 4 percent in 2011 on growth in major markets such as Brazil, China and the US. It is expected to rise another 3 percent in 2012 due to strong crop economics. Asia accounts for more than 60 percent of world DAP and MAP consumption with China alone accounting for 36 percent of the total. India’s consumption growth has been strong over the past decade. However, changes to its subsidy scheme caused a decline in 2011 DAP and MAP consumption and we expect India’s consumption to be flat in 2012 compared to 2011 levels. Consumption in Latin America and the US is expected to grow by 1 percent and 2 percent, respectively, in 2012.
In China, government initiatives toward self-sufficiency in phosphate fertilizer have led to investments in domestic fertilizer production, transitioning it to being a net exporter instead of a long-term net importer. However, China’s government wishes to limit exports to ensure adequate supply for its domestic farmers during fertilizer season, and has implemented export tariffs. DAP and MAP exports face a 110 percent tariff except during June through September when the tariff falls to a minimum of 7 percent with escalators based on the export price for phosphate. China’s DAP and MAP exports rose in 2010 and 2011 on the strength of world demand, but are expected to decline in 2012 due to strong domestic demand and restrictive export policies. This could reduce its exports to just under 4 million tonnes, down nearly one million tonnes compared to the last two years.
India has limited opportunity for domestic phosphate production capacity increases over the next several years. There is a limited indigenous supply of phosphate rock and relies primarily on imports to meet its rising phosphate fertilizer requirements. India’s imports of DAP have increased more than sixfold over the last 10 years. The weak rupee and tighter availability of imports could moderate the DAP supply. The agronomic need for balanced fertility is increasingly understood by Indian fertilizer planners, providing support for sustained import growth for all phosphates products.
Brazil is one of the most market-based agriculture markets in the world, with its crop subsidy levels among the lowest globally. As a result, changes in market conditions have a significant impact on crop input decisions, and explain much of the variation in phosphate imports from year to year. In 2011, Brazil’s supply of DAP and MAP reached near-record levels. Strong agriculture fundamental have supported the demand for phosphates. In 2012, consumption is expected to surpass the record set in 2007.
US DAP and MAP inventories reached a historical low of 585,000 short tons in May 2012. Current levels are 34 percent less than in 2011, and 42 percent below the five-year-average. Despite lower production so far in 2012, exports were up nearly 15 percent year-to-date by the end of May, providing the key catalyst for shipments that resulted in low inventories. The anticipation of strong demand during an earlier planting season supported domestic shipments during March and April.
The development of shale gas has dramatically improved the competitive position of US nitrogen producers compared to suppliers in Ukraine and Western Europe. Industry consultants expect this favorable gas pricing environment will continue for at least the next three to five years. In Europe, major industrial buyers continue to increase their purchases of natural gas from the spot market while others still meet a significant portion of their needs through contracts linked to the price of oil. Oil-based gas prices in Ukraine and other regions of Eastern Europe are expected to remain above those paid in the US.
High oil prices in the second half of 2011 translated into high gas prices for producers with gas contracts based on oil prices. This situation is forecast to moderate slightly in 2012. High-cost producers establish the floor for the nitrogen market. During the latter part of 2011, ammonia prices softened and dipped below the breakeven point for certain high-cost global producers. This triggered some capacity curtailments in regions of high-cost natural gas, such as Central Europe. While demand strengthened during the spring season, nitrogen operating rates increased but were challenged to meet this demand. This seasonal variability in demand can generate significant volatility, particularly during periods of tight availability.
World ammonia consumption for agricultural and industrial uses grew consistently in the last decade, before the 2008/09 economic downturn. We believe that growth trend will continue and that limited planned capacity additions will support a relatively balanced market in the short term. Although several ammonia plants are projected to come online over the medium term, the number of projects proposed after 2015 is still speculative because of the relatively short lead time for construction of an ammonia plant. Some potential operations could be delayed or cancelled. China accounts for the largest share of projected new capacity, but with rising domestic energy costs and the potential for closures of inefficient nitrogen capacity, it is unlikely to significantly increase its nitrogen exports.
The largest flows in global ammonia trade are represented by three main routes: Latin America to North America, Middle East to Asia, FSU to Europe. Latin America to North America sees about 4.7 million tonnes, or about 25 percent of global ammonia trade. Trinidad alone exported 4.45 million tonnes to the US, accounting for the largest trade route within the region and global seaborne international trade. Minor volumes to the US were exported from Venezuela, Mexico, Brazil and Colombia. The other routes show the movement of product from surplus to deficit areas. Given the timeline to bring on new capacity, changes to the pattern of trade are gradual unless altered by some ad hoc import or export policy measure or changes in energy prices.
Start-up delays affecting much of the planned new urea capacity in 2011 resulted in a tighter than anticipated global urea market. Around 2.6 million tonnes of the new capacity projected to come on stream that year was shifted to 2012. By the end of 2012, a cumulative total of around 8 million tonnes of exportable urea could be brought to market in lower-cost gas regions. Roughly 80 percent of this is likely to compete in the export market. However, several delays are developing for the 2012 capacity start-up forecast. New export-oriented plants in Algeria, Iran, Qatar and Northern Africa are expected to provide most urea capacity additions outside of China in the medium term. The trend of delays in bringing new production on stream could also continue to impact these projects.
World urea import demand in 2011 is estimated to have stayed close to the previous year’s record of 41 million tonnes, just over a quarter of the year’s production. The Middle East and the FSU were the largest exporters in 2011 with 12.3 million and 7.8 million tonnes, respectively. East Asia ranked number three at 7 million tonnes, while exports from Africa stood at 3.9 million tonnes. The main markets for the FSU urea are Latin America, Europe and the Middle East (Turkey). Middle Eastern producers mainly export to South Asia, North America, Southeast Asia, Africa and Oceania. Western Europe is the biggest market for African (Egyptian) urea. Trade volumes for urea can fluctuate more than ammonia driven by the nature of the product. It has better storability and easier freight requirements that enhance shipping flexibility. Urea is also more prone to policy decisions that can alter its trade flow such as the export tariff in China.
Strong demand for all nitrogen products and reduced imports in late 2011 and early 2012 created a relatively tight and robust US market for the 2012 spring season. Supportive crop returns provided support for good nitrogen application at planting time and continuing to support demand for side dress applications. US ammonia demand is forecast slightly lower, down less than 1 percent primarily due to lower DAP and MAP production. Urea and UAN are forecast higher in 2012 by 8.5 percent and 7.1 percent, respectively. This represents an overall nitrogen increase on a nutrient basis of 3 percent.
Transcript of "PotashCorp - Market Analysis Report - Q2 2012"
Q2 2012 MarketAnalysis ReportMarket Update June 25, 2012 PotashCorp.com
Forward-Looking StatementsThis presentation contains forward-looking statements or forward-looking information (“forward-looking statements”).These statements can be identified by expressions of belief, expectation or intention, as well as those statements thatare not historical fact. These statements are based on certain factors and assumptions including with respect to: foreignexchange rates, expected growth, results of operations, performance, business prospects and opportunities andeffective tax rates. While the company considers these factors and assumptions to be reasonable based on informationcurrently available, they may prove to be incorrect. Several factors could cause actual results to differ materially fromthose expressed in the forward-looking statements, including, but not limited to: variations from our assumptions withrespect to foreign exchange rates, expected growth, results of operations, performance, business prospects andopportunities, and effective tax rates; fluctuations in supply and demand in the fertilizer, sulfur, transportation andpetrochemical markets; costs and availability of transportation and distribution for our raw materials and products,including railcars and ocean freight; changes in competitive pressures, including pricing pressures; adverse or uncertaineconomic conditions and changes in credit and financial markets; the results of sales contract negotiations with majormarkets; the European sovereign debt crisis and the recent downgrade of US sovereign debt and political concerns overbudgetary matters; timing and impact of capital expenditures; risks associated with natural gas and other hedgingactivities; changes in capital markets and corresponding effects on the company’s investments; unexpected or adverseweather conditions; changes in currency and exchange rates; unexpected geological or environmental conditions,including water inflows; imprecision in reserve estimates; adverse developments in new and pending legal proceedingsor government investigations; acquisitions we may undertake; strikes or other forms of work stoppage or slowdowns;changes in and the effects of, government policies and regulations; and earnings, exchange rates and the decisions oftaxing authorities, all of which could affect our effective tax rates. Additional risks and uncertainties can be found in ourForm 10-K for the fiscal year ended December 31, 2011 under the captions “Forward-Looking Statements” and “Item 1A– Risk Factors” and in our filings with the US Securities and Exchange Commission and the Canadian provincialsecurities commissions. Forward-looking statements are given only as at the date of this presentation and the companydisclaims any obligation to update or revise the forward-looking statements, whether as a result of new information,future events or otherwise, except as required by law.
World Grain Stocks-to-Use RatioGrain Inventories Expected to Remain Tight Beyond 2012Percent 2012 Production Growth Rate Scenarios 6% (~3X Historical Rate) 4% (~ 2X Historical Rate) 2% (~ Historical Rate) Based on crop year data. For example, 12F refers to the 2012/13 crop year.Source: USDA, PotashCorp
2011/12 Stocks-to-Use Compared to Historical AverageGrowing Demand Has Pressured Supplies for Most Major Crop CommoditiesPercent of 25-Year AverageSource: USDA
Agriculture Commodity PricesHigher Crop Prices Reflect Tight SuppliesMay 2012 - Percentage Price Increase Compared to 2002-2011 AverageSource: World Bank
US Corn Crop Condition and YieldWe Believe Corn Yield Estimate is Overstated Based on Current Crop ConditionPercentage of Crop Rated Good/Excellent USDA Corn Yield Projection - Bushels per AcreSource: USDA
US Corn Supply and Demand Current Crop Conditions Create Potential for Lower Production in 2012Production, Billion Bushels Stocks-to-Use, Percent 166 bu/ac 159 bu/ac 2012 Stocks-to-Use ratio Scenarios 166 bu/ac 159 bu/ac 150 bu/ac 150 bu/ac 2012F refers to the 2012/13 crop year. The higher production scenario is based on USDA’s current yield estimate of 166 bu/ac; mid-scenario is based on Cordonnier’s most recent yield estimate of 159 bu/ac; the lower production scenario is based on the low end of Doane’s current yield estimates of 150 bu/ac. Source: USDA, Doane, Cordonnier Corn and Soybean Report
China Grain and Oilseed ProfileDespite Increased Acreage, Production Has Not Kept Pace With DemandHarvest Area – Million Hectares Million TonnesSource: USDA
India Food Inflation and Crop YieldsLow and Variable Yields Contribute to High Food InflationIndia Food Price Index: 2004/05 Equals 100 Rice Yield – MT/HASource: Government of India, USDA
South America Corn and Soybean ExportsSouth American Soybean Exports Rising, Corn Exports Variable Soybeans CornMillion Tonnes Million Tonnes 2011F refers to the 2011/12 crop year.Source: USDA
Brazil Crop AcreageAcreage of Soybeans, Corn and Sugar Expected to Rise in 2012Million Hectares Soybean Corn SugarSource: USDA, FAO, PotashCorp
World Potash Fertilizer Consumption GrowthSignificant Consumption Growth in Large Developing MarketsPercent Annualized Growth (2001-2011) Million Tonnes K2OSource: Fertecon
Potash Shipments by Selected MarketDespite Global Consumption Growth, Shipments Have Been UnevenMillion Tonnes KCl China India Other Asia Latin North America AmericaSource: Fertecon, IFA, Industry Publications, PotashCorp
US Corn/Soybean Potash Application and RemovalHigher Yields Drive Increased Nutrient Removal; Application Rates Have Not Kept PaceMillion Tonnes KCl Equivalent* ~2.3 MMT gap between current application and projected removal in 2016 * Excludes industrial uses and crops other than corn and soybeansSource: IPNI, USDA, PotashCorp
North American Potash Soil Test TrendsSoil Test Results Show Decline in Potassium Levels From 2005 to 2010Source: IPNI
Estimated Soil Potash Level in the USThe Soil Potassium Level Has Declined in Major Potash-Consuming StatesChange in Soil Potash Levels From 2005 to 2010 (PPM) Corn Yield - Bushels/acre N. America Average Ohio Indiana Iowa MissouriSource: IPNI, USDA, PotashCorp
Percent of American Soil Samples Below Critical K LevelA Significant Number Of Soil Samples Show Removal Greater than ApplicationSource: IPNI
Nitrogen-to-Potash Application RatioTemporary Regression In India’s Efforts to Improve Its Application BalanceN:K Ratio Percentage of Indian Fertilizer Subsidy Potash Phosphate NitrogenSource: Fertecon, Industry Publications, PotashCorp
Other Asia Potash DemandSignificant Growth in Southeast Asian CountriesMillion Tonnes KClSource: Fertecon, IFA, Industry Publications, PotashCorp
World Potash ShipmentsExpect Long-Term Demand Will Be in Line With Historical TrendMillion Tonnes KCl Shipment range based on 3.0-3.5% annualized demand growth rate (2002-2016).Source: Fertecon, IFA, Industry Publications, PotashCorp
World Potash Supply/DemandBalanced to Tight Market Conditions Expected in the Coming YearsMillion Tonnes KCl Operating Rate* - Percent * Based on percentage of operational capability (estimated annual achievable production level). Shipment range based on 3.0-3.5% annualized demand growth rate (2002-2016). Operating rate forecast based on mid-point of shipment range divided by operational capability (including announced projects; assuming typical ramp-up period for new capacity).Source: Fertecon, CRU, IFA, PotashCorp
Saskatchewan Brownfield and Greenfield Potash CostsNew Projects Are Increasingly Expensive and Complex to CompleteCapital Cost per Tonne – (CDN$) * New Brunswick cost per tonne based on new 2MMT mine (net addition totals 1.2MMT). ** Based on 2MMT conventional greenfield mine constructed in Saskatchewan. PotashCorp project costs exclude infrastructure outside the plant gate. Assuming US$/CDN$ at parSource: AMEC, Company Reports, PotashCorp
DAP Production CostsSignificant Advantage for Integrated Producers Integrated Producer Non-Integrated ProducerUS$ per Tonne US$ per TonneSource: Fertecon, CRU, PotashCorp
New Global Phosphoric Acid Capacity* vs DemandMarket Expected to Be Balanced to Tight Over the Medium TermMillion Tonnes P205, Cumulative Growth *Capacity includes several projects classified by sources as uncertain, and excludes projects classified as unlikelySource: CRU, Fertecon, FMB, PotashCorp
World DAP and MAP ConsumptionAsia Accounts for Nearly Two-Thirds of World ConsumptionMillion Tonnes ProductSource: Fertecon, CRU, PotashCorp
China DAP and MAP Net ExportsExport Volumes Dependent on Global Demand and Domestic Tax PoliciesMillion Tonnes Product, Net ExportsSource: Fertecon, CRU, PotashCorp
India DAP SupplyIndia’s Demand Expected to Be Flat in 2012Million Tonnes DAP India’s domestic DAP production is from imported phosphate rock or phosphoric acidSource: FAI, Fertecon, CRU, PotashCorp
Brazil DAP and MAP SupplyRising Domestic Production and ImportsMillion Tonnes ProductSource: Fertecon, CRU, PotashCorp
US Producers’ DAP and MAP Ending InventoriesDAP and MAP Ending Inventories at Historically Low LevelsMillion Short Tons 2011 5-Year Average 2010 2012Source: TFI
Natural Gas Prices in Key Producing RegionsUS Likely to Maintain Its Favorable Gas Price PositionUS$/MMBtu W. Europe (Contract) Ukraine (Port) W. Europe (Spot) Russia US GulfSource: Fertecon, PotashCorp
Supply Cost Curves for Nitrogen ExportersHigh-Cost Producers Provide Required Production During Strong Demand Ammonia Cash Costs Urea Cash CostUS$/Tonne US$/Tonne Million Tonnes Export Million Tonnes Export Note: Cost of production estimates based on natural gas price forecast for 2012. Excludes transportation costSource: Fertecon, CRU, Blue,Johnson & Associates, PotashCorp
World Ammonia Supply and DemandRelatively Balanced Ammonia Market Outside of ChinaMillion Tonnes Product *Estimated annual achievable production level from existing operations and projected new capacity.Source: Fertecon, PotashCorp
Ammonia Trade RoutesGlobal Ammonia Trade Flow Requires Access to Unique Infrastructure Total of Major Trade ~ 17.1 Million MT 1.4 intra-region Europe 1.0 Canada to USA 1.5 FSU to Europe 0.8 FSU to NA 0.8 FSU to SE Europe 0.6 FSU to Africa 0.8 Africa to WE 1.5 intra-region Asia 2.5 ME to Asia 4.7 LA to USA 0.6 Oceania to Asia 0.9 intra-region LA Axis of logistics advantage between ME/Asian suppliers and FSU/TrinidadSource: CRU
Global Urea Capacity Additions*Exportable Urea Capacity to Be Built in Low-Cost RegionsCapacity Growth – Million Tonnes Urea Vietnam † $0.85/MMBtu Indonesia Malaysia Gabon Bangladesh † India† Argentina Turkmenistan UAE Azerbaijan Nigeria† *Excludes Chinese urea capacity additions and capacity curtailments *Approximately 80 percent of the new capacity is export oriented † Indicates the country is a net importerSource: Fertecon, CRU, PotashCorp
Urea Trade Routes Global Urea Trade Flows Driven by Import Demand Total of Major Trade ~ 40.7 Million MT 1.8 intra-region Europe 1.7 Canada to USA 1.0 FSU to Europe 2.2 ME to NA 0.8 Africa to NA 3.4 E Asia to S Asia 0.8 Africa to 4.8 ME to S. Asia W. Europe 0.7 LA to USA0.7 E. Asia to LA 3.7 FSU to LA 1.9 ME to SE. Asia 1.5 ME to Oceania Source: CRU
US Nitrogen ConsumptionUS Nitrogen Demand Expected to Be Strong in 2012Million Tonnes Ammonia Urea Nitrogen SolutionsSource: Fertecon, PotashCorp
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