Outlook for International Prices of Fertilizers, Raw Materials and ...

Outlook for International
Prices of Fertilizers, Raw
Materials and Intermediates
Barrie Bain, Director
FERTECONECON
FAI, Hyderabad, 3 December 2009
FERTILIZER PRICES
US$/tonne fob
1200
1000
800
600
Urea - $/t fob bulk Black Sea
DAP - $/t fob bulk US Gulf
Potash - $/t fob Vancouver
NH 3 - $/t fob Black Sea
Sulphur - $/t fob Middle East
400
200
0
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
FERTECON /FAI Hyderabad December 2009 2
1

WHAT HAPPENED IN 2008
Fertilizer and intermediate prices reached all time highs for all products
This was driven primarily by a surge in crop prices driven in turn by
increased demand and low stocks of key crops
The drivers of demand were economic growth in rapidly developing
countries, particularly in Asia plus the surge of interest in biofuels
High energy prices stimulated biofuels demand, but also increased
fertilizer production costs
Supply proved inadequate to meet the surge in demand
Rationalisation in the phosphate industry in 2005 and 2006 meant there
was insufficient capacity to meet the unexpected surge of demand
Overcapacity in potash since the 1970s meant there had been little ne
investment. The loss of a mine in Russia to flooding tightened the
market
The application of high tariffs cut off urea exports from China
Strong demand from the phosphate industry and delays to new supply
led to a surge in sulphur prices
FERTECON /FAI Hyderabad December 2009 3
BACK TO REALITY
Crop prices fell sharply in the second half of 2008 as the
commodity bubble burst, but are now increasing
Oil and natural gas fell sharply but have now increased
Urea prices fell sharply to the cost of marginal export
supply
Ammonia prices fell to below FSU export costs but have
partly recovered
DAP prices fell $900 from their peak of $1200 in the early
summer 2008
Sulphur prices have corrected back to pre-boom lows
Potash prices have fallen but remain above pre-boom
levels
FERTECON /FAI Hyderabad December 2009 4
2

WHAT HAPPENED?
The financial crisis and credit crunch had
direct and indirect effects on the fertilizer
industry – it burst the bubble
Agricultural commodity prices fell
Tightened credit lines slowed both agricultural
and fertilizer markets
Downside price risk discouraged buying
Recession hit non-fertilizer demand for
ammonia and sulphur
FERTECON /FAI Hyderabad December 2009 5
WHAT NOW?
The period of global destocking of fertilizer is
over
Agricultural commodity prices are starting to
improve
Credit remains tight, encouraging “just-intime”
buying through the supply chain – could
lead to short term price increases
Downside price risk gone, except for potash
Non-fertilizer demand for ammonia and
sulphur starting to recover - slowly
FERTECON /FAI Hyderabad December 2009 6
3

FERTILIZER PRICES
1200
1000
800
600
US$/tonne fob
Urea - $/t fob bulk Black Sea
DAP - $/t fob bulk US Gulf
Potash - $/t fob Vancouver
NH 3 - $/t fob Black Sea
Sulphur - $/t fob Middle East
400
200
0
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
FERTECON /FAI Hyderabad December 2009 7
UREA PRICES
US$/tonne fob
800
Urea - $/t fob bulk Black Sea
600
400
200
0
J
07
F M A M J
J A S O N D J F M A M J
08
J A S O N D J F M A M J
09
J A S O
FERTECON /FAI Hyderabad December 2009 8
4

POTASH PRICES
1000
US$/tonne fob
POTASH - $/t fob bulk Vancouver
800
600
400
200
0
J
07
F M A M J
J A S O N D J F M A M J
08
J A S O N D J F M A M J
09
J A S O
FERTECON /FAI Hyderabad December 2009 9
SULPHUR PRICES
US$/tonne fob
800
SULPHUR - $/t fob bulk Middle
East
600
400
200
0
J
07
F M A M J
J A S O N D J F M A M J
08
J A S O N D J F M A M J
09
J A S O
FERTECON /FAI Hyderabad December 2009 10
5

AMMONIA PRICES
US$/tonne fob
800
Ammonia - $/t fob Yuzhnyy
600
400
200
0
J
07
F M A M J
J A S O N D J F M A M J
08
J A S O N D J F M A M J
09
J A S O
FERTECON /FAI Hyderabad December 2009 11
PHOSPHATE PRICES
1400
1200
US$/tonne fob
DAP - $/t fob bulk US Gulf
1000
800
600
400
200
0
J
07
F M A M J
J A S O N D J F M A M J
08
J A S O N D J F M A M J
09
J A S O
FERTECON /FAI Hyderabad December 2009 12
6

LONG TERM PERSPECTIVE
1000
NH3 - US$/tonne fob US/Caribbean - quarterly high
AMMONIA PRICE 1970-2009
900
800
30 year average: $174
700
600
500
400
300
200
100
0
70 75 80 85 90 95 00 05
FERTECON /FAI Hyderabad December 2009 13
POTASH PRICES – LONG TERM
900
800
US$/t fob Vancouver
FERTECON
700
600
500
400
300
200
price converted to
2008 dollars
100
actual price
0
81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
FERTECON /FAI Hyderabad December 2009 14
7

PRICE DRIVERS
Agricultural fundamentals
WHAT DRIVES FERTILIZER
PRICES?
Fertilizers are a commodity
The drivers are supply and demand
Demand is driven by the ag economy
For nitrogen, short term supply/demand
trends can have more influence on price than
longer term trends
This can also be the case in phosphates
Marketing structure means potash prices tend
to be influenced more by longer-term trends
FERTECON /FAI Hyderabad December 2009 16
8

DEMAND DRIVERS
POPULATION - more mouths to feed
BETTER NUTRITION – increased meat
consumption in rapidly growing economies,
more varied diets – more feed grains required
ARABLE LAND AVAILABILITY – need to
increase yields
NUTRIENT BALANCES – under-application of
P and K in many areas – e.g. India and China
COMMERCIAL CROPS – affordability – if
farmers are getting a good price for their crops
they look to optimise fertilizer application
BIOFUELS – new demand
FERTECON /FAI Hyderabad December 2009 17
DEMAND DRIVER CHANGES
POPULATION - still more mouths to feed
BETTER NUTRITION – meat and vegetable consumption
- growth has continued in India, China etc despite the
recession
ARABLE LAND AVAILABILITY – need to increase yields –
more ag land in Latin America – but that needs fertilizer
NUTRIENT BALANCES – under-application of P and K -
but high prices lead to demand destruction in P and K
COMMERCIAL CROPS – affordability – crop prices have
come off peaks and high fertilizer prices were
unaffordable for subsistence agriculture
BIOFUELS – new demand – some countries backing off
from biofuels commitments – but massive expansion in
Brazil and renewed commitment from President Obama
FERTECON /FAI Hyderabad December 2009 18
9

POPULATION
9
billions
8
Increase 2000 - 2030
Low variant - 28%
Medium variant - 36%
High variant - 43%
7
6
Source: UN 2008
2000 2005 2010 2015 2020 2025 2030
note: consumption data is
FERTECON /FAI Hyderabad December 2009 19
USDA GLOBAL MEAT PRODUCTION
FERTECON /FAI Hyderabad December 2009 20
10

NUTRIENT BALANCES
N P K
2020
2015
2010
2005
1995
0% 25% 50% 75% 100%
FERTECON /FAI Hyderabad December 2009 21
CROP PRICES
Crop prices are the key underlying driver of
fertilizer demand in commercial agriculture
At times of high crop prices farmers want to
maximise yields to maximise revenue
This supports high fertilizer prices as long as
farmers see a positive margin
There is a cumulative effect – good farmer
income in the previous year makes farmers
more willing (and able) to pay higher fertilizer
prices.
FERTECON /FAI Hyderabad December 2009 22
11

FERTILIZER USE BY CROP
15%
4%
4%
5%
15%
2%
4%
5%
16%
15%
15%
Wheat
Rice
Corn
Other coarse grain
Soybean
Oil palm
Other oilseed
Cotton
Sugar
Fruit + Veg
Other
Source: IFA
FERTECON /FAI Hyderabad December 2009 23
NITROGEN USE BY CROP
15%
3%
4%
15%
5%
1% 1% 5%
16%
19%
16%
Wheat
Rice
Corn
Other coarse grain
Soybean
Oil palm
Other oilseed
Cotton
Sugar
Fruit + Veg
Other
Source: IFA
FERTECON /FAI Hyderabad December 2009 24
12

PHOSPHATE USE BY CROP
16%
3%
4%
5%
15%
1%
8%
5%
17%
13%
13%
Wheat
Rice
Corn
Other coarse grain
Soybean
Oil palm
Other oilseed
Cotton
Sugar
Fruit + Veg
Other
Source: IFA
FERTECON /FAI Hyderabad December 2009 25
POTASH USE BY CROP
18%
8%
15%
3%
4%
5%
8%
8%
13%
4%
14%
Wheat
Rice
Corn
Other coarse grain
Soybean
Oil palm
Other oilseed
Cotton
Sugar
Fruit + Veg
Other
Source: IFA
FERTECON /FAI Hyderabad December 2009 26
13

US CROP PRICES
$/bushel
15
14
Monthly average price received by farmers
13
12
11
10
9
8
soybean
7
6
5
wheat
4
3
2
1
corn
0
03 04 05 06 07 08 09
Source: USDA
FERTECON /FAI Hyderabad December 2009 27
CORN PRICES
US$/bushel received by farmers
6
5
4
3
2
1
0
81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
FERTECON /FAI Hyderabad December 2009 28
14

CORN PRICES
8
7
6
US$/bushel received by farmers
price converted to 2009 dollars
28 year average
$2.51 - dollars of the day
$3.76 - 2009 dollars
5
4
3
2
1
actual
0
81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
FERTECON /FAI Hyderabad December 2009 29
CORN NETBACKS v UREA
$ s/ton NOLA
800
700
600
$/bushel
8
7
6
500
400
300
corn netbacks to US farmers
5
4
3
200
100
urea price
2
1
0
J M M J
06
S N J M M J S N J M M J
07
08
S N J M M J
09
S
0
FERTECON /FAI Hyderabad December 2009 30
15

CORN NETBACKS v UREA
$ s/ton NOLA
600
$/bushel
6
500
5
400
300
corn netbacks to US farmers
4
3
200
2
100
0
urea price
91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
1
0
FERTECON /FAI Hyderabad December 2009 31
STRONG AG MARKETS
FORECAST
The USDA is forecasting continued growth in
ag export trade
Forward crop prices are higher than current
levels
There has been a step change – recent very
high crop prices were not sustainable – but
nor were the low prices of the late 1990s
FERTECON /FAI Hyderabad December 2009 32
16

AGRICULTURE OUTLOOK
Strong growth in trade in all key crops
Exports are based on commercial farming that will
want to maximise yields by optimising fertilizer
application
In addition countries with large populations such as
India and China will look to maximise their domestic
crop production to ensure food security – and
minimise imports of high-priced crops at a time of
tight global supply
China and Middle East countries are now looking to
develop contract agriculture in Central Asia, Africa
and South America to produce food for China
Brazil has planning a major increase in sugar cane
plantings for ethanol production
FERTECON /FAI Hyderabad December 2009 33
US CORN USE
FERTECON /FAI Hyderabad December 2009 34
17

USDA GLOBAL CORN TRADE
FERTECON /FAI Hyderabad December 2009 35
US CORN PRICES AND STOCKS
TO USE RATIOS
FERTECON /FAI Hyderabad December 2009 36
18

CROP PRICES AND FERTILIZER
PRICES
High commercial crop prices support high
fertilizer prices by creating additional demand
in markets such as the US and Brazil as
farmers look to maximise yields
High crop prices also enable farmers to pay
higher prices for fertilizer
High crop prices also provide a stimulus for
countries with large populations such as India
and China to maximise crop production to
ensure food security and minimise imports
FERTECON /FAI Hyderabad December 2009 37
PHOSPHATE AND POTASH
HOLIDAYS
Farmers throughout the world have taken
phosphate and potash “holidays” – cutting
application to save money
Despite this, in many regions yields have
been good “mining” the soil of P and K
There could be a delayed impact on yields for
next year’s crops
We could see a bounce-back in P and K
consumption from 2010
FERTECON /FAI Hyderabad December 2009 38
19

SUBSISTENCE AGRICULTURE
There is a different picture for subsistence
agriculture, which has suffered badly from high
fertilizer prices
High fertilizer prices result in a sudden and sharp
drop in demand – unless subsidy systems are in
place, as in India
However the impact of this on the world fertilizer
market is limited by the domination of demand from
the commercial agricultural sector
Subsistence agriculture needs to be protected from
fertilizer price fluctuations for social, humanitarian
and economic reasons
FERTECON /FAI Hyderabad December 2009 39
DOMINATION OF ASIA
MAJOR NITROGEN CONSUMERS
Total 96.7 million tonnes N - 2008
Brazil
3%
EU
11%
FSU
4%
Africa
3%
Others
9%
Other Asia
12%
India
15%
Canada
2%
US
12%
China
29%
FERTECON /FAI Hyderabad December 2009 40
20

DOMINATION OF ASIA
MAJOR PHOSPHATE FERTILIZER CONSUMERS
Total 38.8 million tonnes P2O5 - 2008/9
US
8%
Canada
2%
Latin America
13%
Oceania
3%
Africa
3%
FSU
2%
Europe
6%
Asia
63%
Source: IFA
FERTECON /FAI Hyderabad December 2009 41
DOMINATION OF ASIA
MAJOR POTASH FERTILIZER CONSUMERS
Total 26.5 million tonnes K 2O - 2008
0thers
27%
Other Asia
14%
India
11%
Brazil
14%
Canada
1%
US
12%
China
21%
FERTECON /FAI Hyderabad December 2009 42
21

DEMAND – SHORT TERM
Fertilizer demand has fallen in all three sectors –
demand was down in second half 2008 and so far in
2009
Nitrogen demand is recovering first – demand is
starting to pick up
Phosphate demand is starting to pick up slightly, but
major improvement not expected until 2010
Potash demand remains low in 2009 and recovery
will be slower than for other nutrients due to
comparatively high prices
Recovery depends on key crop prices recovering and
credit being available throughout the supply chain
FERTECON /FAI Hyderabad December 2009 43
SHORT TERM DEMAND
200
Milllion tonnes
175
150
K
125
P
100
75
N
50
25
0
2007 2008 2009 2010
FERTECON /FAI Hyderabad December 2009 44
22

SHORT TERM DEMAND
125
Milllion tonnes
100
N
75
P
50
K
25
0
2007 2008 2009 2010
FERTECON /FAI Hyderabad December 2009 45
DEMAND GROWTH - MEDIUM
TERM
Fertilizer demand will to grow in all three sectors from
2010
Nitrogen demand growth will be the strongest initially
but the lowest longer term
Phosphate demand growth will be higher in the
medium term as nutrient imbalances are addressed
in key market areas
Potash demand will be slow to recover but eventually
growth will be stronger than the other nutrients –
nutrient imbalances are greater and some of the main
growth crops are big potash users – soybean, palm
oil, sugar cane
FERTECON /FAI Hyderabad December 2009 46
23

MEDIUM TERM DEMAND
225
Milllion tonnes
200
175
150
125
100
K
P
N
75
50
25
0
2005 2010 2015 2020
FERTECON /FAI Hyderabad December 2009 47
MEDIUM TERM DEMAND
125
Milllion tonnes
100
N
P
75
K
50
25
0
2005 2010 2015 2020
FERTECON /FAI Hyderabad December 2009 48
24

SUPPLY FACTORS
Supply management key to price
development
FERTILIZER PRODUCTION
120000
'000 tonnes nutrient
100000
80000
60000
40000
20000
0
2007 2008 2009 2007 2008 2009 2007 2008 2009
N
P2O5
K2O
Latin America
North America
Oceania
Asia
Middle east
Africa
FSU
Central Europe
West Europe
FERTECON /FAI Hyderabad December 2009 50
25

SUPPLY FACTORS
NITROGEN – many producers with no one
producer or group of producers able/willing to
manage supply
PHOSPHATE – Increased concentration in
the US facilitating some supply management
POTASH – Supply concentrated with major
producers managing supply
FERTECON /FAI Hyderabad December 2009 51
SUPPLY MANAGEMENT
Supply management protects prices in a
downturn and sets the scene for big
increases in prices when demand moves
upwards
Surplus capacity is managed in both phases
of the cycle
Possible in potash and phosphates, but not
nitrogen
FERTECON /FAI Hyderabad December 2009 52
26

NITROGEN SUPPLY
Many suppliers – FSU, Middle East, North
Africa, Asia
Desire to utilize cheap gas feedstock
encourages new investment
Low cost producers do not manage supply –
they keep producing whatever the price
Relatively quick to build a new worldscale
plant – less than 3 years
Construction costs are increasing which may
slow new capacity additions
FERTECON /FAI Hyderabad December 2009 53
NITROGEN FUNDAMENTALS
Ammonia is the building block of the world
nitrogen industry providing the feedstock for
urea, nitrates, the nitrogen content of DAP
and a range of industrial uses
To produce ammonia you need a
hydrocarbon feedstock – usually natural gas,
but coal is also important
Urea is by far the most important nitrogen
fertilizer accounting for 56% of nitrogen use
FERTECON /FAI Hyderabad December 2009 54
27

WORLD NITROGEN FERTILIZER
USE BY TYPE 2007
compounds
other
NH 3
UAN
AS
CAN
AN
urea
FERTECON /FAI Hyderabad December 2009 55
NITROGEN PRODUCTION
CO 2
UREA NITRIC ACID
AMMONIA
NATURAL GAS/
COAL
UAN
AMMONIUM
NITRATES
FERTECON /FAI Hyderabad December 2009 56
28

WORLD DEMAND FOR AMMONIA
BY END-USE 2007
Total 157 million tonnes product
Direct
application
Urea
Fertilizer
Nonfertilizer
Other N
Other
Cx
MAP/
DAP
AN/CAN/
ASN
FERTECON /FAI Hyderabad December 2009 57
NEW AMMONIA PLANTS
LOCATION OF AMMONIA EXPORT SUPPLY ADDITIONS - 2008-2013
3
million tonnes NH3
2
Others
N. Africa
Middle East
1
0
2009 2010 2011 2012 2013
FERTECON /FAI Hyderabad December 2009 58
29

AMMONIA SUPPLY GROWTH
million tonnes product
5
CUMULATIVE GROWTH IN LOW-COST NH 3 EXPORT SUPPLY v. IMPORT
DEMAND (base year 2007)
4
3
2
1
0
-1
2008 2009 2010 2011 2012 2013 2014 2015
Cumulative growth in low-cost export supply
Cumulative change in import demand
-2
FERTECON /FAI Hyderabad December 2009 59
UREA FUNDAMENTALS
Urea production is dominated by the large
Asian producers – China and India
Around one quarter of urea production enters
international trade
Exports are dominated by the CIS and Middle
East
Imports are dominated by Asia, North
America and Latin America
FERTECON /FAI Hyderabad December 2009 60
30

WORLD: UREA PRODUCTION 2007
Total 141 million tonnes
China
India
Middle East
N. Africa
CIS
Other Europe EU15
Other Asia
Oceania
North America
Latin America
FERTECON /FAI Hyderabad December 2009 61
UREA CONSUMPTION
Total urea consumption - 141 million t - 2007
Oceania
Africa
FSU
M. East
L. America
Asia
N. America
Europe
FERTECON /FAI Hyderabad December 2009 62
31

NEW UREA PLANTS
Increase from 169 million t in 2008 to 222
million t in 2015 (FERTECON forecasts)
Increase in export capacity of 14.4 million t by
2014
Most new export capacity in Middle
East/North Africa
New export capacity all located in low gas
cost areas
Continued expansion for local consumption in
Asia
FERTECON /FAI Hyderabad December 2009 63
UREA SUPPLY GROWTH
milion tonnes
50
UREA EXPORTS 2005, 2008, 2013 AND 2020
40
30
20
10
Other
Marginal
Other
Dedicated
CIS
Middle East
0
2005 2008 2013 2020
FERTECON /FAI Hyderabad December 2009 64
32

NITROGEN FEEDSTOCK
Outside of China, natural gas is the key feedstock for fertilizer
production.
Gas production is increasing – not only in low-cost areas like the
Middle East but in major gas consuming areas like India, the US
and Europe
Prices have fallen in the US due to the surge of gas supply from
shale gas deposits using new drilling techniques
The same techniques are now starting to be used in Europe and
will be spread elsewhere – massively increasing potential gas
supply
This is likely to reduce the differential in gas prices between lowcost
areas and major consuming areas
LNG provides the balancing mechanism between different markets
Lower gas costs in markets like the US, Europe and India will
reduce their cost disadvantage over low cost producers –
especially when transport and capital costs are taken into account.
FERTECON /FAI Hyderabad December 2009 65
PHOSPHATE SUPPLY
Typified by over-supply in the US industry until
2005/6 and the formation of Mosaic
Mosaic acted to rationalise capacity, closing plants to
bring supply back into balance and to compensate for
the loss of the export market to China
Phosphate became more like potash – with managed
supply – but the demand collapse in 2008 and 2009
showed that suppliers would rather sell than cut
production
From 2011/12 the 3 million t/y Ma’aden plant in Saudi
Arabia will significantly increase supply to the market
OCP/Morocco and other phosphate-rich countries are
focussing on joint-ventures for future development
FERTECON /FAI Hyderabad December 2009 66
33

PHOSPHATE PRODUCTION
PHOSPHATE
ROCK
SSP
SULPHURIC ACID
SULPHUR
PHOSPHORIC
ACID
TSP
DAP/MAP
AMMONIA
FERTECON /FAI Hyderabad December 2009 67
PHOSPHATE SUPPLY
MAP/DAP EXPORTS 2008
Total 7.9 million tonnes P2O5 / 14.5 million tonnes product
Jordan
4%
China
12%
Australia
2%
Others
5%
Russia
20%
Tunisia
6%
Morocco
7%
Mexico
2%
Lithuania
5%
Source: IFA
US
37%
FERTECON /FAI Hyderabad December 2009 68
34

POTENTIAL PHOSPHATE
PROJECTS – ROCK
Increase from 189 million t in 2008 to 248 million t in
2013 (IFA data)
Europe – Yara (Finland)
Africa – Algeria, Morocco, Egypt, Tunisia, Senegal,
Togo
Middle East – Jordan, Israel
Asia – China
Oceania – Australia
North America – Ontario, Canada
Latin America – Brazil, Mexico, Peru
FERTECON /FAI Hyderabad December 2009 69
NEW PHOSPHATE PROJECTS –
PHOSPHORIC ACID
Increase from 43 million t P2O5 to 55 million t
in 2013 (IFA data) – although most
expansions for on-site downstream use
Little new merchant grade acid capacity
Africa – Algeria, Morocco, Egypt, Tunisia,
Senegal, Togo
Middle East – Saudi Arabia, Jordan
Asia – China, India
North America – Ontario, Canada
Latin America – Brazil, Mexico
FERTECON /FAI Hyderabad December 2009 70
35

NEW PHOSPHATE PROJECTS –
MAP/DAP/TSP
Additional 9 million t by 2013 (IFA data)
Africa – Algeria, Morocco, Egypt, Tunisia
Middle East – Saudi Arabia, Jordan
Asia – China, India, Pakistan, Vietnam
Latin America – Brazil, Mexico, Venezuela
FERTECON /FAI Hyderabad December 2009 71
CHINA – THE WILD CARD
Formerly world’s biggest importer of phosphates
China’s policy to become self-sufficient in phosphates
was achieved in 2006
Uses domestic phosphate rock – but new plants
mostly based on imported sulphur
Supply grew faster than demand
Became major exporter of phosphates
Exports now restricted by export duties for part of
year
China’s underlying policy is that phosphate exports
should be restricted to ensure long-term secure
supply for domestic requirements
FERTECON /FAI Hyderabad December 2009 72
36

POTASH SUPPLY
Supply very concentrated
Two major supply points – Canada and FSU
– account for two thirds of world production
This is represented by six producers and
three marketing organisations
Three marketing organisations – Canpotex,
BPC and K+S – account for 70% of sales
Five marketing organisations control 85% of
sales.
FERTECON /FAI Hyderabad December 2009 73
POTASH PRODUCTION
SULPHUR
MOP
SULPHURIC ACID
SOP
AMMONIA
NOP
FERTECON /FAI Hyderabad December 2009 74
37

POTASH SUPPLY
Total 33.6 million tonnes K 2 O - 2007 estimate
FSU
Germany
Israel
Jordan
China
US
Others
Canada
FERTECON /FAI Hyderabad December 2009 75
NEW POTASH SUPPLY
60
50
Capacity - Milllion tonnes/year K2O
FSU Canada Others
40
30
20
10
0
2008 2009 2010 2011 2012 2013 2014 2015
FERTECON /FAI Hyderabad December 2009 76
38

POTASH INVESTMENT
Most of the new potash capacity is represented by expansions
of existing facilities, primarily in Canada and Russia, although
there is a greenfield project underway in Russia. Some of the
expansions are virtually new mines. There is also a new mine in
Brazil. There are also greenfield projects in Argentina and
Congo.
There has not been a greenfield potash development for many
years and capital costs are high and lead times are lengthy.
Vale’s proposed potash mine in Brazil will have a capital cost of
over $4 billion for a 2.4 million t/y mine.
The need for new mines, and the high capital cost involved, will
mean that potash prices will not return to the low prices on the
1980s, 1990s and early 2000s. Unlike new nitrogen plants in low
cost gas areas which have lower costs than older plants in high
gas cost areas, new potash mines will have total costs
substantially higher than existing mines, which have low capital
costs.
FERTECON /FAI Hyderabad December 2009 77
SULPHUR SUPPLY GROWTH
Sulphur supply growth will exceed demand growth for
foreseeable future
New supply mostly in Middle East and Kazakhstan
Supply also increasing in major sulphur consuming
countries such as China and India
Sulphur will again become a disposal problem for
suppliers with negative netbacks to supplies with high
logistics costs
Re-injection of sulphur at gas production sites
developing and will eventually slow supply growth
FERTECON /FAI Hyderabad December 2009 78
39

SULPHUR SUPPLY
70
million tonnes
60
50
40
30
20
10
0
2008 2009 2010 2011 2012 2013
FERTECON /FAI Hyderabad December 2009 79
PRICE OUTLOOK
Adequate supply will moderate price
upside
40

UREA PRICES – MEDIUM TERM
600
US$/tonne fob
Urea - $/t fob bulk Black Sea
400
Increased supply leads to price moderation
200
0
2007 2008 2009 2010 2011 2012 2013 2014 2015
FERTECON /FAI Hyderabad December 2009 81
PHOSPHATE PRICES
1000
US$/tonne fob
800
DAP - $/t fob bulk US Gulf
600
400
200
upside risk if Ma'aden delayed to
2012-3
Impact of Ma'aden keeps
prices moderate
0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
FERTECON /FAI Hyderabad December 2009 82
41

POTASH PRICES
800
US$/tonne fob
POTASH - $/t fob bulk Vancouver
600
400
Downside rish still exists in short term
200
0
2007 2008 2009 2010 2011 2012 2013 2014 2015
FERTECON /FAI Hyderabad December 2009 83
SULPHUR PRICES – MEDIUM
TERM
600
US$/t
500
400
300
200
Middle East spot
100
0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
FERTECON /FAI Hyderabad December 2009 84
42

CONCLUSIONS
Moderate prices expected in medium
term. High price levels of 2008 unlikely to
be repeated
CONCLUSIONS - DEMAND
Fertilizer demand is now starting to recover, and this
will gather pace in 2010
Crop prices are improving
Low fertilizer application - particularly of P and K –
will need to be corrected in 2010 and 2011 if yields
are not to fall
Subsistence agriculture was severely challenged in
2008 and will need subsidies and/or aid finance for
fertilizers to avoid a drop in yields
Medium term, fundamentals of increasing population
and improving diets, plus demand for biofuels, will
mean a return to strong demand growth
FERTECON /FAI Hyderabad December 2009 86
43

CONCLUSIONS - SUPPLY
Higher costs of new plants for all products – a new 1 million
tonne/year facility for ammonia/ urea, phosphate and potash all
cost at least $1 billion
This creates a higher base cost for new producers
There have been fundamental changes in the cost of natural
gas in the US which suggests the existing US industry will
remain competitive going forward
European gas prices could go the same way – protecting the
industry there.
Gas pricing is becoming more global due to the influence of
LNG
The cost differential between existing plants in high gas cost
areas and new plants in low cost areas has reduced – and in
some cases disappeared.
FERTECON /FAI Hyderabad December 2009 87
CONCLUSIONS - PRICE
There has been some recovery for nitrogen –
both ammonia and urea, but increased
supply limits the upside on prices
Phosphate prices could remain under
downward pressure in the near term but
market fundamentals could strengthen in
2010 until supply increases 2011 onwards
Potash supply/demand balance will correct as
demand recovers, but increased supply will
mean upside on prices is limited.
FERTECON /FAI Hyderabad December 2009 88
44

THE OUTLOOK FOR INDIA
India has seen substantially lower prices for imported ammonia, urea and
phosphate since August 2008
Ammonia prices have increased, but the upside is limited due to new
supply
Increased supply, particularly from the Middle East should keep urea prices
moderate, and we could see some lower prices from 2011.
Potash prices have ended up higher than before the boom, but additional
supply should mean further increases unlikely in the medium term.
However, the need for new investment will increase costs – and thus
prices.
India will benefit from low sulphur prices in medium term, although there
could be some short term increases
Phosphate rock and phosphoric acid prices have been brought back back
into line with DAP prices. DAP looks weak once Ma’aden in Saudi Arabia
comes in stream in 2011
There is likely to be increased interest from countries with fertilizer raw
material resources – natural gas, phosphate rock and potash – for joint
ventures with major end users such as India – particularly in finance can be
made available
FERTECON /FAI Hyderabad December 2009 89
A WINDOW OF OPPORTUNITY
India is unlikely to face again the high prices seen in
2008.
These stretched the subsidy budget almost to breaking
point and provided the initial stimulus for reform.
Although those pressures are now reduced, the
momentum for subsidy reform has become
unstoppable.
The more moderate prices expected in the near and
medium term provide a window of opportunity for the
industry and government to move Indian fertilizers into a
new era of sustainable pricing within a structure that
encourages enterprise and development whilst
protecting the interests of Indian farmers.
FERTECON /FAI Hyderabad December 2009 90
45