End User Focus: Fertilisers see green shoots

By Alex Feytis
Published: Friday, 17 December 2010

Fertilisers are getting back to pre-crisis levels but a phosphate shortage is expected in the mid-term while potash is expected to remain stable

Two years after the beginning of the financial downturn, the fertiliser industry seems to finally be back to pre-level crisis, steadily continuing its growth.

“Today, there are prospects for firm growth rates for fertiliser demand in the short term as we have entered a strong recovery phase. We are now back to pre-crisis levels for Nitrogen-Phosphorous-Potassium (NPK) fertilisers applications,” IFA’s director, production and international trade, Michel Prud’homme said to IM.

“There is a very important demand for fertilisers owing to positive fundamentals in agriculture as agri-commodities prices such as soya, wheat and corn have increased significantly since mid-2010,” he added, underlining that farmers are anticipating on 2011 harvest.

According to IFA’s latest figures, world fertiliser consumption grew by about 5% in 2009/10 and should increase +4.7% in 2010/11. A 3.8% growth is forecast for 2011/12.

Last summer, IFA reported that fertilisers were approaching 2007 levels as world fertiliser demand was rebounding in 2009/10. The France-based organisation expected a return to more favourable and more stable market conditions, as farmers were seen as reinvesting in phosphate (P) and potash (K) fertilisers to maintain or improve the fertility of their soils.

According to IFA’s data, world nutrient production dropped by 8% to 194m. tonnes in 2008/09, the lowest level since 2003. Phosphate rock production decreased by 7% and potash production by 50%.

On consumption level, global fertiliser consumption declined by 7% in 2008/09 to 156.7m. tonnes of nutrients with -11% for P fertilisers and -20% for K fertilisers.

Nitrogen (N) fertilisers were much less affected (-1.8%), causing concern at the end of 2009 about their predominant consumption over potash and phosphate, which could exhaust soils on long term.

While drops in consumption were registered worldwide, South Asia, Eastern Europe, Central Asia, and Africa remain strong markets for the fertiliser industry.

Recovery began cautiously in 2009/10 in parallel to the progressive economic improvements. There was an increase in global consumption to 162.5m. tonnes (3.7%) in this period, with increases for N (+3.1%) and P (8%) fertilisers and a 1.2% decline for K fertilisers.

Different types of fertiliser recovered at different levels. Being the most essential nutrient for crops, nitrogen got back to pre-crisis levels as soon as 2009, followed by phosphate in 2010. Full recovery is expected in 2011 for potassium according to Prud’homme.

Potash catching up

According to IFA, K fertilisers demand is anticipated to rise at higher annual rates (4.3%) than demand for N (1.8%) and P (3.1%) fertiliser, a result of its strong contraction in 2008/09.

After decreasing by 50% during the crisis, potash rebounded 53% in 2010 and is now back to pre-crisis levels. “We expect record levels for potash consumption, production and sales for 2010,” Prud’homme said.

“Increasing crop prices (corn +24% on three months, wheat +5%, sugar +38%) have been a significant driver of tight fertiliser markets. Stronger crop prices provide farmers with both the ability (in the form of strong farm incomes) and the incentive (desire to take advantage of strong pricing) to increase fertiliser consumption,” Jaret Anderson, investment analyst, Chemicals, Fertilisers & Agriculture at Salmans Partners, explained to IM.

The excellent returns in the potash business over recent years are starting to attract capital to the industry and fertiliser companies keep investing in new projects. As an example, although it had to drop its takeover bid on PotashCorp., BHP Billiton acquired significant potash land holdings in Saskatchewan, Canada, and is moving forward with plans on its Jansen project, an 8m. tpa greenfield potash project that could start up in the back half of this decade.

Jansen is a very large project - it is 60% larger than any existing potash mine today and would represent approximately 13% of the industry’s 2010 operational capability.

“In addition, a number of smaller greenfield potash companies are developing projects in Saskatchewan, Africa and Brazil that could add to capacity several years out,” Anderson highlighted.

However, potash is produced in only 12 countries, with Canada, Russia and Belarus accounting for the lion’s share. With relatively few deposits around the world and a minimum of 4-5 years required to build a greenfield solution potash mine (5+ years for a conventional mine), we are unlikely to see any large scale greenfield potash operations start up before 2016.

There are a number of brownfield expansions underway which will add perhaps 6m. tonnes of capacity between now and 2013. More than half of the brownfield expansions over coming years will be at PotashCorp operations.

It is likely that potash demand will grow further. “We expect a tighter market in 2011 compared to 2009 and 2010,” Prud’homme explained as potash production is not expected to significantly increase between 2009 and 2011.

The potential potash surplus is starting to reduce while increasing demand is more important than expected increased capacity for 2010/11.

Phosphate tight

“The market is tight at present as demand is stronger than expected for all type of phosphates in all markets,’ IFA’s Prud’homme said.

Demand for phosphate keeps increasing, particularly in Asia where China and India have huge needs for the fertiliser mineral.

Although a significant amount of projects - including OCP in Morocco; Minemakers Ltd and Legend International Holding Inc. in Australia; Vale SA in Brazil; MBAC Fertilizer Corp. in Canada; Sunkar in Kazhakstan - are progressing worldwide to increase world phosphate capacity, most of them are not expected to be into production before 2014-2016.

A small increase in capacity is expected in 2011 when Ma’aden Phosphate Co.’s project, a 70:30 joint venture between the Saudi Arabian Mining Co. (Ma’aden) and Saudi Basic Industries Corp. (SABIC) starts production. But it will not be enough to meet the expected demand.

“The phosphate market will be tight through 2011 and likely until 2014,” Prud’homme forecast.

Outlook

After getting back to pre-crisis levels, it seems that the fertiliser market will continue its healthy growth on short and mi-term. “World nutrient demand has entered into a phase of growth,” Prud’homme believes.

According to IFA, the growth rate for fertiliser demand in 2010 and 2011 are well above the 15-year average of 2.2-2.5%, as the market is catching up after the financial downturn in addition to being boosted by attractive agricultural commodity prices.

IFA expects world fertiliser consumption to grow by 4.7% in 2010/11 and by 3.8% in 2011/12.

The highest growth in demand for both P and K fertilisers is expected to occur in East Asia even though growth in regional demand is seen as slowing down as China approaches a ‘mature’ market status for N and P fertilisers. Significant growth in demand for K fertiliser is also forecast in North America and Latin America.

Richard Downey, senior director of investor relations at Canadian fertiliser producer Agrium Inc. confirmed to IM that Asia had significant potential for fertilisers as the company plans to use its latest acquisition in Australia as a base for further expansion in South East Asia in the long term (IM 3 December 2010: Fertiliser group Agrium completes acquisition of Australia’s AWB).

In the medium term, the forecast gets even brighter. According to IFA, the positive agricultural outlook will stimulate fertiliser application, with world demand expanding at an annual rate of 2.5% to 190m. tonnes in 2014/15.

However, “while the market today is tight, the picture five years out is less clear,” Jaret Anderson pointed out.


Potash prices on the rise

Potash prices are firming on the back of rising crop prices, particularly soy beans, wheat and corn, in strong market conditions.

“Near term, we expect potash prices in Vancouver and offshore markets to play catch-up with the price increases implemented in the US Midwest,” Jaret Anderson, investment analyst, Chemicals, Fertilisers & Agriculture at Salmans Partners, explained to IM.

“In our PotashCorp model, we have price realisations increasing approximately $100/tonne over the next couple of quarters as the price increases announced for the US Midwest take hold,” he added.

Owing to increasing crop prices, list prices for potash in Saskatchewan were reported with a 28% increase over the past three months from $374/tonne to $450/tonne.

In other markets, a $50/tonne increase in Brazil and South East Asian markets has also been realised taking prices to $425-440/tonne CFR for standard material.

“Long term, we assume a potash price of $400/tonne FOB Vancouver - an assumption that allows us to evaluate greenfield potash projects in a conservative manner,” Anderson forecasts.


Fertiliser minerals at a glance

Main fertiliser minerals

Minerals Fertiliser use World production (m. tonnes) World capacity (m. tonnes) Purpose
Nitrogen (N) 75% 126.9 133.5

Often required in the greatest quantity by crops, primarily for vigour and yield.

Plays a key role in chlorophyll production and protein synthesis.

Phosphate (phosphorous feedstock) > 90% 165 (phosphate rock) 200 (phosphate rock)

Vital component of adenosine triphosphate (ATP) which supplies the energy for many processes in the plant. 

Phosphorus rarely produces spectacular growth responses, but is fundamental to the successful development of all crops. For example, maize or other corn crops that lack phosphorus during the growing season achieve lower yields.

Potash (potassium feedstock) > 95% 26 61

Needed by virtually all crops and often in higher rates than nitrogen.

Potassium regulates the plant’s water content and expansion.

Key to achieving good yield and quality in cotton and critical for increasing the size, juice content and sweetness of fruit.

Sulphur (S) ~ 60% 72 72 Particularly important for ensuring the protein content of cereal crop grains.


Types of fertilisers

Direct phosphate fertilisers
Monoammoium phosphate MAP
Diammonium phosphate DAP
Single superphosphate SSP
Triple superphosphate TSP
Phosphate rock
Complex phosphate fertilisers
Nitrogen/phosphorus/potassium NPK
Nitrogen/phosphorus NP



Sources: IFA, USGS, AFA, IM