Fertiliser loses its mineral appetite

By Simon Moores
Published: Friday, 20 March 2009

A review of the fertiliser minerals sector reveals how, since a record breaking 2008, producers are reacting to a severe slowdown in demand and the impact this has on future expansion plans by Simon Moores, Senior Assistant Editor

 
 
 
 
South East Asia is seen as one of the most promising growth regions for fertiliser minerals despite the present demand slump. Courtesy K+S 
Until last September, the year 2008 was record breaking for fertiliser mineral producers. Phosphate demand was through the roof, potash was threatening to break the $1,000/tonne barrier and sulphur was at a severe shortage owing to overwhelming demand, predominately, from the fertiliser sector.

Since September 2008, across the board demand has dried up and producers have been left waiting for an upturn.

With food shortages gripping regions of the world (particularly in Africa), the global population soaring, and increased biofuel demand looming, surely the need for fertilisers should always be there?

Except in India where fertiliser is subsidised, the agricultural industry is subject to the same market dynamics as any sector. Despite the sheer necessity for food, it is not regulated by any governing body. For this reason, mineral shipments have all but stopped as the end users are waiting for clarity to the world’s economic situation.

Fertilisers’ IM position

When considering end markets for industrial minerals – ceramics, refractories, glass, construction, for example – they tend to have the following characteristic: a variety of minerals consumed in volumes relatively lower than for fertilisers.

In this sense, the fertiliser market is unique: it is driven by the consumption of only nitrogen, phosphorous and potassium which are sourced from nitrate minerals (nitrates), phosphate rock (phosrock) and potash, respectively.

Additionally, a major secondary nutrient worthy of a mention is sulphur, a vitally important mineral not necessarily for its direct granular application in fertilisers but more for its influence over the sulphuric acid market – key for fertilisers, particularly in the production of phosphate fertilisers.

Despite having the same agricultural end use, supply of the these key minerals is at the mercy of their own individual market dynamics which have exhibited extreme yet differing behaviour since the global economic crash began in September 2008.

Fertiliser minerals 
Nutrients Mineral sources Fertiliser form Purpose Volumes consumed
Primary Nutrients
Nitrogen (N) Nitrates: potassium nitrate and sodium nitrate Urea, ammonium sulphate, ammonium nitrate, nitrogen/phosphorous/potassium (NPK A primary constituent of amino acids and proteins. Since enzymes and membranes are protein-based structures, a nitrogen deficiency will curtail plant growth. 2009 global nitrogen capacity: 136m.tonnes (around 90% used in fertilisers)
Phosphorous (P) Phosphate rock (apatite), phosphate sediments Diammonium Phosphate (DAP), monoammonium phosphate (MAP), triple superphosphate (TSP), NPK, phosphoric acid and phosphate rock The energy-containing molecules that are present in respiration and photosynthesis 2009 global phosphate rock capacity: 167m. tonnes (>95% consumed in fertilisers)
Potassium (K) Potash Commonly, muriate of potash - MOP (KCl), potassium oxide (K2O), sulphate of potash - SOP (K2SO4), and NPK. Potassium plays more roles in a plant than any other nutrient. Potassium does not become a direct part of the plant structure, but acts to regulate water balances, nutrient and sugar movement in plant tissue, plus drives starch and protein synthesis and legume nitrogen fixation. 2009 Global potash capacity: 58-59m. tonnes present operating rate: 50m. Tonnes
Secondary nutrients
Calcium (Ca) Calcium carbonate: limestone, dolomite, chalk, marble, calcite etc A major constituent of cell walls
Magnesium (Mg) magnesium sulphates, magnesite, dolomite Mg is central to photosynthesis, a carrier of phosphorous in the plant, and an enzyme activator.
Sulphur (S) Elemental sulphur, pyrites Sulphuric acid, granular sulphur, ammonium thiosulphate S is a component in certain amino acids and vitamins 2009 global sulphur capacity:72m. tonnes (around 30m. tonnes consumed in fertilisers)
Micronutrients
Boron (B) Borate minerals (particuarlly colemanite) Promotes seed production 2009 global borates capacity: 4.1m. tonnes (around 4% or 160,000 tpa consumed in fertilisers)
Copper (Cu) Stimulates seed production, regulates enzymes
Iron (Fe) Aids cholorphyll formation and as a catalyst in the plant
Manganese (Mn) One of the main oxidation-reduction nutrients
Molybdenum (Mo) Required in the smallest volumes; stimulates growth of legumes owing to its role in N metabolism
Zinc (Zn) Works with copper as a co-factor in enzyme systems
 


Phosphates

Fertiliser demand for phosrock has slowed considerably in 2009, as fertiliser end users defer orders until clarity is gained on the present economic situation. The pricing of phosrock has reflected this falling by a third in three months (see Phosrock pricing).

The world’s phosrock mining hubs are in China (for internal usage), Morocco, and Jordan. The Office Cherifien des Phosphates (OCP) in Morocco produces 30m. tpa with its main export markets located in North America and Europe. Jordan mainly supplies India with its 5-6m. tpa output, while China’s production dwarfs many countries, with an output between 40-50m. tpa for domestic use.

For North America, phosrock is more of a logistical effort. The continent receives the majority of its product from Morocco, and it is a case of timing the orders correctly a) to get a favourable price but, more importantly, b) to not be left with a storage headache.

This is why sourcing phosrock outside of the continent has been described as “a strategic priority” by The Mosaic Co.’s president and chief executive office, Jim Prokopanko.

Mosaic holds the world’s largest phosphate fertiliser production capacity at around 9m. tonnes, OCP is second with ~4m. tonnes, and Russia’s PhosAgro AG third with 3m.tpa.

Phosrock pricing

Unlike the potash market (see Potash), phosrock pricing is a fair reflection of the market’s present situation.

Phosrock (64% BPL) from Jordan, FOB, fell from $300-375/tonne in January 2009 to $115-120/tonne at the beginning of March. Elsewhere in India (CFR) prices dropped from $300-375/tonne to the region of $140/tonne, 64-65% P, for the same period.

More recently, FOB phosrock prices from Casablanca (70-72% BPL) have fallen from $350/tonne at the end of last year to $250/tonne now – and even this appears optimistic from the suppliers side. The cost of North African 68-72% product has been quoted as low as $150/tonne FOB.

Phosrock production was in full flow in 2008 with the industry’s mines and processing plants working at full capacity. Fertiliser and phosphoric acid demand was sky high when the financial crisis hit the world’s blind side.

Production cuts at the world’s phosrock mines are yet to force prices up or even, as the present prices suggest, bring stabilisation to the industry.

Leading phosphate producer, The Mosaic Co. cut 1m. tonnes of production in December and is expected to cut another 1m. tpa in 2009 reducing its expected phosrock sales to 8m. tonnes.

In a seemingly strange situation, despite the cuts, a raft of new phosphate projects are being announced including: OCP’s 15-20m. phosrock expansion in Morocco (see IM February ’09, p.6); Vale’s 3.9m. tpa Bayovar project in Peru creating one of South America’s largest mines; Fosfertil’s 2m. tpa mine in Minas Gerais, Brazil, to come online in 2011; and a 3m. tpa phosphate sediment development in Namibia increasing to 6m. tpa in 2011 (see IM December ’08, p.20).

This gives confirmation enough of the industry consensus that this downturn is short term, despite the fact it is unprecedented.

Potash

Despite potash’s slight pricing dip, visible on the accompanying graph (N, P, K: same problems different reaction), potash has suffered a significant demand hit just as much as nitrogen and phosrock.

Potash in 2008 was the most celebrated of fertiliser minerals and its demand was truly unprecedented for an industrial mineral – high bulk, low value? Potash emphatically proved otherwise. Its spot price peaked at between $800-850/tonne FOB, most of which was coming from Saskatchewan, Canada, when only a year before it was languishing around $140/tonne FOB. The price even threatened to break the $1,000/tonne barrier, but this never materialised.

Major expansions were announced last year at all major producers including an 8m. tpa program at the world’s leading producer, PotashCorp of Saskatchewan, together with increases at The Mosaic Co., USA, and JSC Uralkali and OAO Silvinit, both Russia.

PotashCorp was even used by banks and financial markets analysts as the barometer of the agricultural sector.

Then the world’s economy crashed resulting in a serious demand slump. But many of the world’s potash producers were quick to react with production cuts to maintain prices.

Cuts control prices

PotashCorp announced the most aggressive cuts slashing 2m. tpa production from its 11-12m. tpa capacity, while with USA based The Mosaic Co. is estimated to have cut around 900,000 tpa potash from its 10m. capacity.

North America’s other major producer, Agrium Inc. is not likely to announce any cuts on its 1.8m. tpa potash output, instead affirming its intention to “to proceed with a project that would ultimately increase [its] Vanscoy mine [output] to 2.8m. tpa.”

One of Europe’s leading producer, Germany based K+S confirmed last month that it has cut 400,000 tpa potash (a figure which was estimated at double), but also revealed that it may cut another 1.3m. tonnes from its 8m. capacity by the middle of 2009.

As the table shows, Russia has also reduced production with the most conservative estimates at around a tenth of the country’s output.

Major producers, Belarusian Potash Co. (~7m. tpa capacity) and Israeli Chemical Ltd (5m. tpa) are yet to announce any production reductions.

As producers publically announced these cutbacks, the availability of potash diminished, despite the full stockpiles, warehouses and supply lines. This maintained potash’s price at around $600/tonne FOB.

In a situation that mirrors the phosrock market, cuts ensue but so do expansions, confirming the bullish mood among producers on the long term demand.

Bill Johnson, director public affairs at PotashCorp told IM: “We’ve announced in Canada a $6.8 billion expansion plan which started in 2007 and runs to 2012, raising production from 10-18m. tonnes. We have not backed off on these expansion plans at all.”

Global potash cuts 
Potash producer Reduction (tpa) Capacity (tpa)
PotashCorp, Canada 2m. 12m.
K+S Kali, Germany 400,000* 8m.
Uralkali, Russia 700,000 (est) 5.5m.
Silvinit, Russia 500-1m. 5.1m.
Mosaic, USA 900,000 (est) 10m.
 


Future markets

Two of the world’s largest potash producers have been subject to rumours circulating about a government forced merger. A deal between Uralkali, Silvinit and OAO Apatite has been circulating for the best part of 2009 (see IM February ’09, p.15: Russia awaits fertiliser mineral merger).

On the face of it, a merger would make sense – the companies share the same locality, the same logistic chains and have the same target customer. The government is eager to reduce dependency on food imports by boosting its domestic production, and is therefore keen to control fertiliser mineral output.

Michael Freeman, research manager at British Sulphur Consultants, commented to IM: “Russia is very difficult to read. We expect demand in Russia and the Ukraine to significantly increase as demand shifts to a new gear. The merger between Uralkali and Silvinit would make sense but this won’t happen unless the government intervenes. Maybe in five or so years this will change.”

Even with potash production increases, it is believed Russia’s domestic supply would not satisfy demand once its agricultural sector is in full swing, opening the door to increase imports.

The focus over the last six months has been on Russia, but the major emerging markets for fertiliser minerals is seen as South East Asia and Brazil.

Johnson from PotashCorp explained: “We see Russia growing, but bigger for us is South East Asia and economies with double digit growth”.

This was echoed by K+S which expects the “highest increase in application and use of fertilisers in the main Asian countries (China, India) and Latin America (Brazil).”

There is not much negative talk in the potash industry on the present demand situation, producers are planning for the medium to long term and the demand levels of today are not even registering. Business of around H1 2008 levels is expected to be resumed at the end 2009, beginning of 2010.

Friedhelm Mester, global potash manager at K+S, told IM: “Medium and long term... the growing world population will result in a higher demand for agricultural commodities and lead to a higher application of fertilisers.

“Because of the limited availability of arable land an increase in crop production only can be reached by harvesting higher yields. [Potash is] most effective way of increasing yields per hectare. Furthermore, the future prospects for potash will be above average. One answer to the question how to increase yields is balanced fertilisation. In some of the world’s crop growing regions this balance has not been reached yet.”

This also gives some insight into the questioning over potash’s necessity and that it is not deemed by some in the same light as nitrogen and phosphates. Potash also has a high residence time in the soil which results in long periods of no application.

“You can of course reduce potash application but only for a short period of time, then the yields will suffer. Crops need the three main nutrients [nitrogen, phosphorous, potash],” added Peter Rummel, K+S’ European potash marketing manager.

Sulphur’s falling fortunes 
 
Sulphur spot prices have crashed to historically low levels. Contract negotiations have all but ceased as customers halt plans owing to market uncertainty. Source: FMB 


Sulphur

Sulphur really is the rollercoaster of fertiliser minerals. In 2007, the mineral was in excess as its production as a by-product from the petroleum industry was far greater than demand.

For the best part of 2008 this turned around significantly with a shortage gripping the world. Sulphuric acid shortages hit an array of industries including copper, titanium dioxide and indeed fertiliser.

The situation, once again, has changed – sulphur is in excess and trading has all but ceased. The fertiliser market has all but stopped buying sulphur for direct granular and sulphuric acid applications, compounded by the stalling of activity at major sulphuric acid end users.

N, P, K: same problems, different reaction 
 
Analysing the downturn reaction of DAP (phosphate) against MOP (potash fertiliser) and urea (nitrogen), potash fertiliser has held up whereas phosphate and nitrogen fertilisers have plummeted.
Source: FMB 


S prices tumble

Prices of sulphur have taken an astonishing tumble from around $800/tonne in mid-2008 to figures as low as $45/tonne, in the situations where customers have to pay!

In some cases, refineries in the USA are paying for tonnages to be taken away. The same was reported in Mexico with fertiliser producer, Grupo Fertinal, being paid to accept molten sulphur from US and Venezuelan refineries.

At the beginning of 2009, South African phosphate producer, Foskor Ltd, which utilises sulphur in production of phosphate fertilisers, agreed a contract for $450/tonne down from $850/tonne, FOB, Vancouver. A price which now, on the surface, appears high.

Speaking to South American sulphur trader, JBG Petroleum Corp., the severity of the situation becomes clear.

Eduardo García, president and chief executive officer of JBG told IM: “We are coping with a lot of sulphur volumes. This is basically due to the financial crisis worldwide affecting the planning of the agro-industrial sector.”

The market simply does not want to negotiate sulphur contracts with such volatility and uncertainty gripping the industry.

García continued: “[The fall in sulphur prices] has put some of the petroleum manufactures and buyers behind scheduling. They had postponed supply commitments and contracts for a period of six months causing a lot of sulphur availability.”

“On the other hand, sulphur producers using extraction of sulphur from petroleum runs had experienced a gain in inventories because of reduction on crude quotas thus affecting more sulphur into their petroleum at the refinery level”.

Despite this global gloom, as always China is looking to take advantage with FMB’s Weekly Sulphur Report (12 March 2008) stating: “Players in the Chinese sulphur market are describing it as very strong with buyers looking to snap up any available tonnes.”

Of all fertiliser minerals, sulphur has the least control over its destiny. Sulphur production is dominated by the petroleum industry and thus controlled by the demand for oil.

Unlike the potash and phosphate markets, where the producers can take tonnages off the market to stabilised prices, sulphur is continually being produced as a by-production of oil refining, and is thus a by-product of oil demand and not sulphur demand.

This has resulted in a volatile market and result is clear in the accompanying graph: spot prices crash (see “Sulphur’s falling fortunes”).

As IM went to press, there were signs that activity was slowly creeping back into the sulphur market with Tunisia purchasing small volumes for $27/tonne, CFR, and a cargo sold to Argentina for $40/tonne (CFR).

Despite the present downturn, sulphur’s use in fertilisers is predicted to breech the 40m. tonne barrier by 2011 from today’s level of around 30m. tonnes.

Chris de Brey of the Sulphur Institute was decidedly upbeat about the outlook for sulphur. He told IM: “Sulphur was considered a raw material to manufacture phosphate fertiliser now it is considered a valuable nutrient”.

Nitrates

The vast amount of nitrogen is sourced as a gas, extracted in large volumes from the atmosphere. However, there are a few producers worldwide which mine it as a mineral, the group of which is known as nitrates. The production bases tend to cluster in brine sources of South America.

Nitrogen is the most in demand element for fertilisers, unlike potash is has very limited storage capacity in the soil and is constantly required.

SQM SA is the leading producer of nitrates extracted from the Salar de Atacama brine resource in north Chile. The group recently reported a decline of 23% in potassium nitrates sales in 2008, falling to 585,300 tonnes.

At the end of 2008, the “tide was going out” on the nitrogen sector with customers unwilling to buy in a declining market. This has sent prices plummeting in the same direction as phosphates and sulphur, as is apparent from the graph highlighting urea trends (the nitrogen bearing fertiliser).

Ken Nyiri, principal consultant at British Sulphur Consultants expects a rise in prices for the remainder of the year: “The market has over adjusted and prices may firm up for the remainder of 2009 settling at over $300/tonne. On average they will be down, but up from current levels.”

Agrium recently highlighted advantages for North American nitrogen producers including a strong domestic demand coupled with low gas prices. Nyiri also highlighted Bolivia’s potential to emerge as a new production base owing to its gas supplies.

World sulphur production and forecast 
 
*Preliminary         **Forecast



 
Source: Suphur Outlook, TSI 2008 

Deferring demand


Many industries are playing the waiting game to see how the unprecedented global economic crash pans out. If there ever was a perfect example of a demand deference, or the wait and see attitude, the fertiliser market is it.

The end users, the farmers, have taken a double impact. The larger commercial scale farming corporations have taken a demand hit particularly in the West – sure, people still need to eat, but they are watching the amount more than ever and are opting for cheaper products from Eastern Europe, South America, and South East Asia.

The small scale, individual farmers are struggling more on the financial front – bank loans are drying up thus they are unable to support their business.

“Credit lines have been affected and small customers like farmers felt bearish with the situation...” explained sulphur trader Garcia from JBG Petroleum, “...and [therefore] have put their customers on a backorder scenario waiting for a better and clearer definition of the financial crisis.”

There is also a seasonality factor impacting feedstock producers, particularly in Europe after experiencing one of its harshest winters and a wet spring.

The assumption that food is a necessity therefore the need for fertiliser should match is not as straight forward as one might presume. Bill Johnson of PotashCorp made a fair point to IM: “Who would have thought that the banks would be nationalised by their respective governments. There are crucial external factors weighing on the market”

Times for all in the fertiliser industry are some of the most challenging ever, and they are expected to get worse before they get better. But food is the one product that takes priority over all other commodities and this will ensure that when the world’s markets rebound, fertiliser will probably do so the strongest.

See IM May 2009 for an analysis of the global potash market.