sabic - Search Center - Bank Audi

SABIC
December 4, 2012
FOOTNOTES
INITIATION OF COVERAGE EQUITY RESEARCH
FERTILIZER INDUSTRY FUNDAMENTALS STILL FIRM
Agricultural market conditions have remained tight. Global grain stocks are still at a historical low,
with the stocks-to-use ratio falling significantly over the past ten years. Corn, the most traded
grain in the global coarse grain trade, is witnessing falling stock-to-consumption levels for the crop
calendar year 2012/13, reaching historical lows again.
Chart 5: Global Stocks-to-Use % of Corn
Source: Bloomberg
Moreover, the world population is progressively increasing and eating habits, especially in
developing countries, are improving. In turn, and amid such low stock levels, there is a need for an
increase in global grain production to counter the continuing growth in demand for food, feed and
fuel. Strong grain prices in the markets today should also incentivize farmers to increase agricultural
activity. With global grain production supported across the years, fertilizer demand should also
remain strong. Global demand for nitrogen fertilizers is projected to grow at a CAGR of 1.5% for the
period 2012-2016, with global demand for urea specifically projected to grow at a CAGR 2.1% for
the same period. Global supply of nitrogen fertilizers is also expected to largely increase in parallel,
particularly with the emergence of new capacity in China, with figures pointing to a CAGR 12-16 of
3.6%. Global supply of urea is projected to grow at a CAGR of 4.1% for the period 2012-2016 5 .
Although the growing surplus in the nitrogen fertilizer markets threatens the long-term outlook
of the industry, this threat should be mitigated given that the fertilizer industry today is demanddriven.
Moreover, support for the industry, particularly pricing support, should stem from:
1 Limited export volumes from China, given its strict urea export policy, keeping global markets
somewhat immune from its massive capacity additions
1 Continued project delays slowing down projected capacity growth
1 A tight global grain outlook keeping prices at historical highs
1 Attractive grain prices incentivizing farmers
1 Swing producers’ production cost remaining relatively high
5 Fertilizer Outlook 2012-2016, IFA
4