Alistair Wallace. Director, Senior Consultant and Nitrogen Team Lead CRU Group. Nitrogen Outlook

Transcription

1 Alistair Wallace Director, Senior Consultant and Nitrogen Team Lead CRU Group Nitrogen Outlook

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3 Strong demand fundamentals underpin nitrogen market, but... Presentation Structure...producers have overcooked medium term capacity investment. Geopolitical risk is higher than ever and tightening markets. China s huge capacity is driving the global nitrogen market. For now.

4 Demand side fundamentals

5 Crop prices stabilise; medium term gains likely 600 Export prices (US$/t) Wheat Corn Soyabeans

6 Population and macro economy support crop acres Index (2000 = 100) Population Grain consumption Vegetable oil consumption Meat consumption

7 This has also been supported by N affordability Jan 2006 = Jan 11 Jul 11 Jan 12 Jul 12 Jan 13 Jul 13 Jan 14 Jul 14 Index of Urea Prices Index of Crop Prices Affordability index

8 Driving crop areas and higher application rates Area (million hectares) Grains&Rice Oilseeds Fruit&Veg Other crops Total N fertilizer 1, , , , , Nutrient demand (million tonnes N)

9 China over applies N, while others under apply Brazil China P+K application (kg/ha) India USA China applies more fertilizer to corn than the USA but achieves lower yields 20 0 Argentina Mexico N application (kg/ha) Bubble size = yield

10 Population will continue driving N consumption millions 10,000 Global population N consumption pp kg N/pp 20 9, , , , , , , , ,

11 Overcooked supply

12 More capacity built this decade than previous 25yrs Ammonia capacity (000 tonnes) China Rest of the World

13 Urea supply additions: Today to 2019 NA 5.0 mn LATAM: 3.3 mn CIS: 4.2 mn Mid E Africa 1.1 mn 4.4 mn S. Asia 1.9 mn China 14.5 mn SE. Asia 1.9 mn

14 Investment lowers trade & hurts marginal supply Investment in North American and LATAM capacity Investment in low cost CIS, MENA & SS African export capacity

15 Weak prices have slowed building, so has inflation

16 Urea capacity growth is now outstripping demand Index: 100=2010 Capacity Consumption

17 However, the result is a forecast of low op rates Mn tonnes Spare capacity Non China prod Op. rate Exc China exports 105% 100% 95% 90% 85% 80% 0 75%

18 Supply disruptions

19 Physical disruptions in Ukraine tighten ammonia Urea availability fallen to 40% (100kt/m). Ammonia down to 25% (25 30kt/m)

20 At risk tonnage in the merchant ammonia market Trinidad 3% N. Africa 3% Ukraine 3% Trinidad 24% RoW 91% RoW 61% N. Africa 8% Ukraine 7% Global Ammonia capacity = ~200 million t/y Traded Ammonia Market = million t/y

21 Urea now worth less than the value of its ammonia $/tonne Nitrogen Black Sea Nitrogen Pricing Upgrade differential Urea $/tonne Ammonia Jan 11 Mar 11 May 11 Jul 11 Sep 11 Nov 11 Jan 12 Mar 12 May 12 Jul 12 Sep 12 Nov 12 Jan 13 Mar 13 May 13 Jul 13 Sep 13 Nov 13 Jan 14 Mar 14 May 14 Jul 14 Sep 14 Nov 14

22 China driving the market

23 Pressure is growing for more liberalisation Originally implemented in 2005 to decouple the domestic agricultural market from international prices As Chinese urea capacity expanded, the export duty has revised down; in 2014 high season = RMB40 +15%, while low = RMB40 This is still market distorting with inventorying and warehousing tactics weighing on the low season

24 Capacity and liberal export policy boost China s role Chinese Urea Exports Exports FOB Black Sea ('000 tonnes) FOB Black Sea ($/t) 1, ,600 1,400 1, , Jan 11 Mar 11 May 11 Jul 11 Sep 11 Nov 11 Jan 12 Mar 12 May 12 Jul 12 Sep 12 Nov 12 Jan 13 Mar 13 May 13 Jul 13 Sep 13 Nov 13 Jan 14 Mar 14 May 14 Jul 14 Data: GTIS, CRU

25 China is limiting the impact of Ukraine s troubles Millions Monthly Exports Range yr average forecast Millions Cumulative Monthly Exports forecast Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Millions Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Monthly Exports Range yr average forecast Millions Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Cumulative Monthly Exports forecast

26 Chinese export values price setting since mid 2013 $/mt 550 Prilled FOB Black Sea Prilled FOB China Jan 2010 Mar 2010 May 2010 Jul 2010 Sep 2010 Nov 2010 Jan 2011 Mar 2011 May 2011 Jul 2011 Sep 2011 Nov 2011 Jan 2012 Mar 2012 May 2012 Jul 2012 Sep 2012 Nov 2012 Jan 2013 Mar 2013 May 2013 Jul 2013 Sep 2013 Nov 2013 Jan 2014 Mar 2014 May 2014 Jul 2014

27 China s urea market is in chronic oversupply Million t/y Spare capacity Exports Domestic consumption

28 China less competitive as labour costs increase 65% RMB/hr Hainan Hebei Shandong Henan Fujian Shanxi Heilongjiang Guangxi Zhejiang Guangdong Liaoning Jiangsu Jilin Guizhou Sichuan Tibet Jiangxi Yunnan Hubei Shaanxi Hunan Ningxia Anhui Chongqing Inner Mongolia Gansu Qinghai Tianjin Xinjiang Beijing Shanghai

29 Coal & fright markets tighten; RMB strengthens $/MMBtu US$/tonne RMB/USD Cost per 1,000 km for Fertilizer Delivery in China Jul 2008 Jul 2009 Dec Apr 2011 May 2012 Feb 2013 Feb 2014

30 Market forces are distributing China s resources

31 In conclusion Strong fundamentals underpin both medium and long term nitrogen demand but the market looking oversupplied following a massive expansion of global urea capacity and Chinese export policy 3. This will weigh on global nitrogen operating rates; especially so for prilled urea 4. China is now the global swing producer and events in the country s N market will determine the medium term future of all N values 5. However, near term market remains prone to supply disruptions, especially on the ammonia side

32 This presentation is assembled by the expert staff of CRU s fertilizers team, using information from a wide range of sources, including the International Fertilizer Industry Association (IFA), various regional and national agencies, and suppliers of international trade statistics, including GTIS, as well as individual producers and exporters of these products.