Our market drivers
+22%
Increase in global consumption of N, P2O5 and K2O over the past ten years.
Source: Fertecon, CRU, IFA.
Industry timeline
January 2010
Potash
BHP Billiton (BHP) approves plan to spend USD 240m on Jansen project.
M&A
Vale agrees to acquire the stakes of Bunge and Yara in Brazilian phosphate producer Fosfertil for a combined USD 4.6bn.
M&A
BHP announces acquisition of Athabasca Potash for USD 320m.
February 2010
Potash
BPC raises potash prices for Brazil to USD 410/mt.
M&A
Vale acquires Mosaic's stake in Fosfertil for USD 1bn.
M&A
Yara offers Terra shareholders a USD 41.10/share cash deal.
Nitrogen
AUM Complex MHTL Trinidad launches 1.5 MMT p.a. of new UAN production capacity.
March 2010
M&A
CF raises its offer for Terra to USD 47.40/share – Yara withdraws from bidding. Agrium withdraws its offer for CF. CF secures its acquisition of Terra.
M&A
Vale agrees to sell its stake in the Bayovar phosphate rock mining project and port terminal in Peru with annual capacity of 3.9 MMT to Mosaic (35% for USD 385m) and Mitsui (25% to for USD 275m).
M&A
DSM N.V. agrees to sell its DSM Agro and DSM Melamine business to Orascom Construction Industries (Egypt) for EUR 310m, effective from January 1, 2010.
April 2010
M&A
UralChem (Russia) shelves its plans to float up to 40% of its shares in an IPO.
May 2010
M&A
Vale closes deals with Bunge, Yara, Fertipar and Heringer and pays USD 3.0bn for 58.6% direct and indirect stake in Fosfertil.
Resources
Australian government introduces a plan to impose a 40% 'super' tax on the profit of mining companies.
June 2010
M&A
Dmitriy Rybolovlev sells a 53.2% stake in Uralkali and 20% in Silvinit to companies controlled by Suleiman Kerimov, Alexander Nesis and Filaret Galchev.
Phosphates
Environmental groups file a lawsuit against Mosaic contesting a federal permit for the extension of its South Fort Meade, Florida, phosphate rock mine.
July 2010
Agriculture
Disastrous drought and forest fires ravage crops in Russia. Floods in Pakistan affect 17m acres of agricultural land.
August 2010
Phosphates
Vale officially starts phosphate rock production at Bayovar.
Agriculture
The Russian Government announces a ban on grain exports effective August 15, 2010, to December 31, 2010. Russian grain harvest expected to fall from 97 MMT in 2009 to 60-65 MMT in 2010.
M&A
Agrium acquires AWB Limited, a leading Australian agricultural retailer, for USD 1.2bn.
M&A
44% of Silvinit shares acquired by several shareholders reported to be associated with Suleiman Kerimov.
M&A
Shareholders of PotashCorp receive a USD 38.6bn unsolicited takeover bid from BHP Billiton. PotashCorp rejects BHP's offer.
September 2010
M&A
Vale announces plans to spin off its fertilizer division through an initial public offering in 1H 2011 to help finance its USD 12bn investments in the fertilizer sector.
October 2010
Phosphates
Mosaic obtains a 4-month mining window at South Fort Meade.
Potash
The Russian government announces plans to liberalize the domestic potash market from 2013.
Nitrogen
Fertinitro, Venezuela's largest fertilizer producer, is nationalized.
November 2010
M&A
The Canadian government rejects BHP's bid for PotashCorp.
M&A
K+S announces its acquisition of Potash One Inc. for USD 430m. Potash One is expected to launch c.2.7 MMT of potash production by 2015.
Phosphates
Commercial DAP production in Ma'aden is officially delayed until 3Q 2011.
December 2010
Phosphates
OCP (Morocco) announces ambitious expansion plans for DAP/MAP capacity (4 MMT in 2013-2015) and phosphate rock production (from 30 to 50 MMT p.a.), representing planned investments of USD 7bn.
Potash
Planned merger of Uralkali and Silvinit is announced. Uralkali offers to buy 20% of Silvinit for USD 1.4bn and will issue shares to swap them for Silvinit ordinary and preferred stock. Market value of the new company is estimated at USD 24bn.
Potash
Uralkali and Silvinit sign contracts for 2011 with Russian NPK producers for the supply of potash at the minimum export netback price, adjusted every quarter.
January 2011
BPC concludes a 6-month contract for potash supply at USD 400/mt (CFR) with Chinese buyers.
M&A
Cargill announces plans to spin off its 64% majority stake in Mosaic to its shareholders and creditors in a USD 24.3bn deal.
Strong momentum returned to the fertilizer sector in 2010, as an empty supply chain was unprepared to satisfy farmer demand following the financial crisis and had to re-stock quickly. Adverse weather conditions in several key cropproducing regions, as well as short-term financial interests, pushed soft commodity prices higher still.
Global economy and agricultural commodities
- Agricultural commodity prices were supported by fundamental demand, driven by population growth, urbanization in emerging markets, diet changes, and decreasing arable land per capita. However, supply shocks due to bad weather/poor crops in many key agricultural regions (Russia, Kazakhstan, Pakistan, Canada, Australia, etc.) have lowered global grain inventories and tightened supply/demand balance much further.
- Credit markets stabilized following their virtual closure during the 2008-2009 financial crisis, helping farmers and distributors finance their needs.
- Consequently, farmers have both the incentive and the ability to put nutrients into the field. Demand for fertilizers recovered strongly, particularly in the P and K segments, driven by a depleted supply chain coupled with the under-fertilization in 2009.
- The extension of the higher export tax window by China in December 2010 for urea and MAP/DAP tightened the global supply/demand balance further.
Global agricultural consumption in nutrients (MMT)
Source: Fertecon, CRU, IFA.
Rice, wheat, soybean and corn prices (USD/bushel)
Source: CBOT.
Nitrogen segment
- Global agricultural consumption of nitrogen increased by 2.0% in 2010, from 101.9 to 103.9 MMT of nutrients. Urea prices averaged USD 288/mt (FOB Black Sea) in 2010, compared to USD 250/mt in 2009 and USD 306/mt in 2007. In January 2011, urea prices already averaged USD 374/mt.
- Natural gas prices rose in Russia (by 15% in RUB terms to c. USD 3.1/mmBtu for 2011), Ukraine (to USD 9.5/mmBtu delivered to the plant), for Eastern European producers (to USD 9.8-10.5/mmBtu), but remain low in the US. Spot gas in Europe was relatively inexpensive in the first half of 2010 at USD 5.8/mmBtu, but climbed to USD 8.5-9.0/mmBtu in the fourth quarter of 2010. Oil-linked contract gas in Western Europe stood at USD 10.5/mmBtu.
- Current marginal producers (Ukraine, Eastern Europe) are estimated to break even at USD 280-300/tonne for urea FOB Black Sea.
- Rising coal prices continue to push costs up for Chinese producers. Additionally, China temporarily shuts down an estimated 4.5-5.0 MMT p.a. of coal-based ammonia and urea capacity on environmental and energy concerns.
- New capacity in the Middle East and other low gas cost regions remains a threat to the sector.
Phosphate segment
- Global consumption of phosphate fertilizers increased by 7.9% in 2010, from 36.1 to 39.0 MMT of nutrients.
- Average DAP prices for 2010 recovered to USD 485/mt (FOB Baltic) from USD 328/mt and USD 411/mt in 2009 and 2007, respectively. Prices rose further to an average of USD 570/mt in January 2011, driven by supply/demand issues and an empty supply chain.
- Prices were driven by the strong recovery in demand from farmers, the low inventory levels and the under-fertilization of 2009 (global consumption of phosphates decreased by 12% in 2008 and retreated a further 7% in 2009 when compared to 2007) and the delays surrounding the introduction of additional capacity.
- The main ongoing project on the phosphate market, Ma'aden, was officially postponed from 2010 to the second half of 2011.
- Environmental issues gained further traction: Mosaic, a leading phosphates player, was forced to temporarily curtail its production of phosphate rock in Florida. Agrifos (US) will end MAP/DAP production in the second quarter of 2011, whereas Fertiberia (Spain) completely stopped production of phosphoric acid in 2010.
- The industry remains relatively consolidated and this translates into certain pricing power for producers, at least until significant additional capacity appears on the markets.
Potash segment
- Global potash sales in 2010 fully recovered and amounted to approximately 53 MMT of product (KCl), with global deliveries projected to rise to 55-56 MMT in 2011.
- Prices bottomed in early 2010, with China and India respectively settling contracts at USD 350/mt and USD 370/mt on a CFR basis.
- In early 2011, BPC concluded a 6-month contract with Chinese buyers at USD 400/mt; spot prices in Brazil and Asia rose to the USD 430-450/mt level (all expressed on CFR basis).
- The industry continues to consolidate with Uralkali and Silvinit merging in Russia, K+S acquiring a majority stake in Potash One (Canada) while PotashCorp successfully repelled a hostile takeover bid from BHP Billiton.
- EuroChem remains the only clear contender for new potash greenfield capacity anytime before 2015.
- Given the high consolidation of the industry, China and Brazil remain interested and capable of building or buying their own potash production as a matter of national food security.