The fertiliser mine to market chain
has been hit hard in the last 18 months. Not only has demand
for many of its main minerals evaporated as a result of tight
credit for consumers, but government focus on food
security of which fertilisers were some of the greatest
beneficiaries has very much taken a back seat to the
Western governments, which were the
driving force behind a push for a significant increase in
global food production in the wake of a rocketing population,
have turned their attentions to more immediate and pressing
courtesy Lars Ploughmann
Last month the subject was gingerly back in the spotlight
following protests in India against the introduction of a
genetically modified (GM) aubergine (brinjal). The
proposal was suspended for future consideration; however, the
food supply problem in India will not go away. The
countrys population is set to overtake Chinas in
2030 and domestic food production is not positioned to satisfy
If the GM decision was successful
it would have opened India the worlds second most
densely populated country with 1.13 billion people to 56
other GM crops. The furore was sparked by the moral
implications of such a development, but the key issue at play
is one of global food security.
In the same month, Africas
food crisis was branded a disgrace by leading
researchers in the UK, the Natural Resources Institute (NRI),
after monetary aid from the West was not finding its way to the
ground on the continent.
Dr Guy Poulter, director at the NRI
said that the figure of hungry people has now reached
over a billion highlighting the severity of the food
shortage issue in large swathes of the globe.
So the question that begs to be
asked: why is fertiliser demand still significantly low while
its importance in increasing food production is established and
well known? Insight begins as high up the market chain with the
fertiliser mineral producers.
Potash deals have been a rare sight
since 2008. OAO Silvinits agreement with India in
mid-2009 was greeted with much optimism and hailed as the
return of activity. However, the Russian producers
$460/tonne (delivered) deal for 850,000 tonnes of potash by
mid-March 2010 was only to be followed six months later by
The deal by marketing and trading
firm, Canpotex, saw 350,000 tonnes of potash sold to
Chinas Sinofert in the $375/tonne range,
according to Saskatchewan energy and resources minister, Bill
Canpotex, the offshore marketing
and trading company for Canadas big three
producers PotashCorp., Agrium Inc., and The Mosaic Co.
played hard ball with the Chinese by upping the asking price by
$25/tonne and by keeping the contract short delivery by
the end of Q1 2010.
Contracts with the Chinese usually
dictates potashs price for the rest of the year.
Sinoferts asking price was estimated in the
$340-350/tonne region, but Canpotexs negotiations to up
this price were greeted positively in an industry which is
desperate for a demand increase, but acutely aware of how low
customer stocks are.
PotashCorp.s chief, Bill
Doyle, believes this desperation forced Belarusian Potash Co.
(BPC) and Israeli Chemicals Ltd (ICL), into a deal with the
Chinese which they will regret.
BPC struck a deal in January 2010
with Chinese importers for $350/tonne and ICL with China
National Offshore Oil Corp. Ltd for $355/tonne; both were too
low and for too long according to PotashCorp.
The settlement with China was
too low, said Bill Doyle, chief executive officer of the
worlds leading producer PotashCorp. which holds a
capacity of 11-12m. tpa or 20% global capacity.
Doyle added: To tie in at
this pricing level for the whole year would have been a mistake
for us. BPC have proved to be a bit of a panic seller. They are
basically inexperienced marketers. They have panicked in both
Doyle, dubbed the King of
fertiliser, believes industry demand, of which stocks are
now depleted, will rebound sharply in H2 2010 driven by
Chinas desperation for tonnages considering its dire
domestic capacity of 1.2m. tpa through SDIC Xinjiang
From the BPC and maybe even
the ICL point of view, I think they will both come to regret
their contracts with China by the time the second half of the
year rolls around, said Doyle.
What the BPC/China deal has
achieved is a return to activity for potash demand. As a
result, potash spot prices are also on the rise.
On the general pricing climate for
potash, Filipp Gritskov, a BPC Spokesman, told
IM: [consumers] have been waiting for a
price floor a price benchmark [which has now
been set] as a result of talks held between BPC and China.
It returned confidence to the
market forcing consumers to come out of the woods and purchase
fresh volumes of potash fertilisers. We expect prices will
continue to rise and our outlook remains very positive,
Although this rhetoric is identical
to that of early 2009, there is widely held belief from
producers and independent analysts alike that potash is due for
a big come back, particularly now prices are roughly half that
of 2008 levels.
North America is already seeing
signs of a demand return.
Shipments of potash from
North America in January 2010 where three times higher than the
year before, Harry Vroomen, vice president of economic
services at USA based The Fertilizer Institute (IFA)
BPC believes that global demand for
potash will reach a minimum of 45m. tonnes this year in
comparison with the 2009 volume of 25m. tonnes.
Phosphate has experience a
similarly tough time to potash with production down close to
20%. Global production has fallen from 165m. tpa to 200m. tpa
according to the US Geological Survey (USGS).
Phosphate rock spot prices have
also fallen from a value of $350-400/tonne to $90/tonne.
Agrium Inc, one of the USAs
leading phosphate producers, saw its average sales price fall
to $392/tonne from a record $1,117/tonne achieved in Q4
The fourth quarter of 2009
saw the initial stages of recovery in the crop input sector. We
have seen increasing demand for domestic potash and a tight
supply situation for nitrogen and phosphate products,
said Mike Wilson, Agriums president and CEO.
The global market is also seeing
new tonnages of phosphate with Saudi Arabia starting to export
from the j-v plant at Al Jalamid plant owned by Saudi Arabia
Mining Co. (Maaden) and Saudi Basic Industries Corp.
The port authority at Ras al-Zour
said it will receive in December the first ship to export
the first cargo of phosphate from the plant.
Although driven by fertiliser, the
market is not the be all and end all for phosphate. It is
primarily a feedstock for phosphoric acid which is used to make
an array of fertiliser products and is also one of the most
widely consumed industrial chemicals. See IM December 2009:
Phosphate face-off for a global review of phosphate
supply and markets.
State controlled fertiliser?
The seriousness of global food
production in relation to population growth is one that is of
growing and great concern. A topic of discussion is whether
governments should take a more active role in the fertiliser
industry such as Indias does to mitigate risk.
India is the only country that
subsidises fertiliser, tightly controlling supply lines to
protecting its agriculture industry from price fluctuations.
For this reason, India was the only country in the world to see
growth in agriculture sector, an astonishing 11% in 2009
considering that even China, the worlds biggest market
for fertiliser, fell by 2%.
Michel PrudHomme a director
at the International Fertilizer Association (IFA) believes that
a government controlled industry will damage its long term
State control may facilitate
the access to supply in respective home markets but for
internationally traded commodity such as potash, for
example for which international markets represent 80% of
total deliveries such control would be ineffective and
would hamper and inhibit any future investment in
capacity, PrudHomme told IM.
Much of the potash industry
experienced this situation between 1985 and 2000 when there
were no economic incentives to invest in new capacity,
particularly with potashs trading price languishing
around one eighth of its peak value in 2008.
Interest in potash rocketed
comparatively overnight between 2007 and 2008 after a boom in
fertiliser demand which caused a tightening in supply and the
price to rise over $700/tonne. It was only once these market
forces and financial incentives came into play that global
capacity increases engulfed the industry and over 80
exploration projects emerged.
Many believe state controlled
segments of the industry will do nothing but hamper its
progression. Despite the issues that farmers have had with
potash producers in the past, market forces as it being seen
now with a new potash price of $350-370/tonne will
eventually correct situation.
With a private potash miner for
example, an expansion of capacity is a decision which lies with
the chief executive officer and his management. In the main it
can be a quick, easy and effective process from initial idea
stage to implementation. Now put this decision in the hands of
governments and layers of bureaucracy.
The point PrudHomme makes,
that a privately run industry is the most beneficial way to run
the fertiliser mine to market chain, is one that many echo.
This is despite the worsening situation with global food supply
to feed a population which is spiralling out of control. A
state-run business will eliminate financial incentives, and a
business without financial incentives is a dangerous situation
in any way, shape or form.
Has fertiliser been
Retuning to the original question,
the answer is not that straight forward. It is a mantra that is
repeated time and again by the industry and by this publication
that: fertiliser is a crop enhancer not a crop
I dont think people
have forgotten about fertiliser but they have definitely cut
back significantly. Fertiliser prices hit record highs and the
whole supply chain was built into a frenzy. It has just taken a
while for the high prices to make its way through the
system. Harry Vroomen of US based IFI told
The fertiliser economist explained
that very good weather conditions in the USA last year
mitigated the impact of the lack of fertiliser use. He said:
Its only when the crop is stressed that we really see a
significant drop in yields.
This year though, good
managers will put more potash down. Its like your bank
account: you cant go out and buy a sports car every year.
You may be able to do so one year, but next year you will have
to add more money to your account, commented Vroomen.
Fertiliser fundamentals are still
promising: corn prices are still high ($3.50/bushel), demand
for food globally is only heading one way, and the need for
balanced fertilisation is well known to agronomists and farmers
While the industry is focussed on
the when big demand will return, few are considering the
implications of the bigger and longer term picture of global
food security that is becoming a greater challenge day by
John Beddington, UK governments chief scientist summed
this up best: It is predicted that by 2030 the world will
need to produce 50% more food and energy, together with 30%
more available fresh water, whilst mitigating and adapting to
climate change. This threatens to create a perfect
storm of global events.
COMMENT: Fertiliser drives
M&A in 2010
Yara, BHP, Vale could
spark emergence of fertiliser giants
BHP has become increasingly aggressive in acquiring
potash assets. The groups chief, Marius Kloppers
expects fertiliser to go the same way as
Last month Norwegian phosphate
miner, Yara International ASA, was involved in one of the
biggest fertiliser deals of recent times after it agreed to
purchase US fertiliser producer Terra Industries Inc. for $4.1
In addition, mining giant Vale SA
has agreed to acquire The Mosaic Co.s 20.27% stake in
Brazils largest phosphate and nitrogen fertiliser
producer Fertilizantes Fosfatados SA (Fosfertil) for $1.03
These huge developments at the
start of 2010 look set to spark a host of industry mergers and
acquisitions with mining focused players keen to capitalise on
potential profits of downstream fertiliser products.
This is what potash and phosphate
producer Agrium Inc. has been attempting to do for more than a
year with nitrogen and phosphate fertiliser maker CF
Industries, to no avail.
Agrium was one of the first to
comment on Yaras deal with Terra.
I think Terra recognised that
being a regional local player is probably not going to cut it
in the global market and they had to be part of a bigger global
organisation, said Agrium spokesperson, Richard
He added: I think CF will
likely come to that realisation as well, but Im not sure
how long that will take,
Integration is becoming a theme
emerging from the midst of the global economic gloom and it
could well turn into a trend in this decade.
The entry of the worlds
biggest miners, Vale (again) and BHP Billiton PLC, in
fertiliser minerals is adding fuel to this fire. Keen to a
diversify away from metals which have been hit hard by in the
last year and a half, both mining giants are progressing potash
and Vale developing an additional phosphate mine.
BHP Billiton has been particularly
active in recent months adding junior potash miner Athabasca
Potash Inc. for $320m. to Jansen Project in Canada Ð
expected to be the worlds biggest potash mine when it
becomes active in six years.
Vale also has its huge Bayovar
project in Peru that is set to become 3.9m. tpa mine by the
middle of this year.
With Agrium keen to expand, PotashCorp. a continuing
acquisition target of interest, and BHP becoming increasingly
aggressive, M&A could well be here to stay for the
fertiliser industry. and we could well be stating to see the
emergence of true fertiliser giants.
For copies of this one page map, email IM at firstname.lastname@example.org
North Americas agriculture
industry experienced a strong year in 2009. Long periods of
favourable weather conditions mitigated the lack of nutrients
applied. Soil nutrient credits and fertiliser stocks have since
expired therefore 2010 will see a return in mineral demand.
Brazil and Argentina account for
the lions share of this average. Brazils push to
turn the Amazon Basin into a crop growing hub together with
Argentinas grain production to feed its significant
cattle industry is set to ensure strong and steady long term
fertiliser demand. However the Argentinas naturally
fertile soil means reduced fertiliser use when prices are
European customers are fully aware
of the need for balanced fertilisation, particularly in
countries with limited land such as the UK. Agricultural
strongholds such as Poland, France and Germany have and will
continue to see robust demand for fertiliser which is well
above the global average which is presently at 108 kg/ha.
North Africa 73 kg/ha; Sub Sahara 7 kg/ha; South Africa 44
There is a huge disparity between
the three regions of Africa. North Africa is benefitting from a
renewed focus by its respective governments to build up its
agricultural production power. Libya is one such country which,
through the irrigation of the Great Man Made River, is opening
up new areas of fertile land.
Poverty, primitive farming
techniques, and lack of financial support has resulted in
Sub-Sahara Africa becoming the most fertiliser depletion region
on the planet. There is a target from African heads of state to
increase average fertiliser use here from 7 kg/ha to 50
China is the worlds
agricultural powerhouse through the production of a host of
foods such as rice, wheat and potatoes. Domestic agriculture
has been critical to supporting the most populous county on the
planet feeding over 1.3 billion. Rapid and steady population
growth has added significant stress on farming areas which are
most dense in the north-west and to boot, China has limited
domestic fertiliser production. The sheer fertiliser volumes
China requires will continue to lead the world.
6. South East Asia
Fertiliser use: 155 kg/ha
In terms of proportionate growth
prospects, South-East Asia is the most promising region in the
world. Agriculturally intensive counties such as Indonesia and
Malaysia are set to significant increase production of palm oil
and rubber. The challenge is to persuade farmers, mainly
individuals rather than corporations, for the need for balanced
Fertiliser use: 98
Indias present fertiliser consumption rate is probably
the starkest of all considering it hosts a population of 1.1
billion, just 200m. shy of Chinas total. The country is
acutely aware of the need for fertiliser and the need to
significantly boost domestic agriculture. Like China, India is
a big importer of fertiliser minerals lacking domestic potash
and phosphate supply to satisfy internal demand.
The irregular impact of
The benefits of fertiliser depend on a number of controlling
factors including weather patterns, soil quality and crop
variety. So if fertiliser prices rise, there is a greater
benefit for some than others.
35kg of corn
For every 1kg of nitrogen
fertiliser applied on average in developing countries
9kg of corn
For every 1kg of nitrogen
fertiliser applied in Zambia
Fertiliser minerals at a
The big three
Consumption in 2009
Total: 163.2m. tonnes
production: 165m. tpa
capacity: 200m. tpa
Potash (>95% fertiliser use)
Potash production: 26m. tonnes
Source: IFA, USGS, AFA, IM
Nitrogen (75% fertiliser use)
Nitrogen production: 133.5m. tonnes
Note: under 5%
comes from sodium and potassium nitrates (solid form) from the
Atacama Desert, Chile; the majority is a by-product of gas
Sulphur (~60% fertiliser use)
Sulphur production: 72m. tonnes
minerals: magnesium (magnesite) and calcium
* including Kazakhstan, Japan,
India, Chile, Italy and Mexico
Note: sulphur is a secondary fertiliser nutrient, and is now
produced as a by-product of oil and gas production