AAAC Outlook Day

Fertiliser Outlook

Friday, 27 November 2009Andrew Macrae – Manager Procurement CSBP Limited

Outline of presentation

Outline of Presentation

• Unprecedented price volatility over past 18 months

• Underlying reasons behind the volatility.

• The primary driver of fertiliser pricing.

• Snapshot of World Food Production

• Snapshot of World Fertiliser Use and Production

• How reliable are Fertiliser Supply Demand Projections

• Impact of Major World Fertiliser Players – China an example

• World Fertiliser Exports and Australian Imports

• Conclusions and Questions

• In the event that this presentation contains forecasts or estimates in relation to fertiliser and grain prices (or any other matter) then these forecasts are expressions of CSBP’s opinion only, and are based on assumptions that are subject to significant uncertainties and contingencies. Some (if not all) of these contingencies are outside of CSBP’s control and actual future events may vary significantly from the forecasts or estimates. To the extent that the presentation contains information from third party sources, that information has not been independently audited or verified by CSBP.

• CSBP makes no express or implied representation or warranty that any estimate or forecast will be achieved or that any statement as to future matters will prove correct.

Disclaimer

FOB PRICESUREA, DAP, MOPJUL 05 to NOV 09

0

200

400

600

800

1,000

1,200

1,400

USD Mt

Urea DAP Potash Sulphur

SEPT 07

SEPT 08

World Fertiliser FOB Prices

Outline of presentation

Pricing volatility

• Early 2008, rising consumption of agri-commodities associated with tightening grain stocks gave a very bullish outlook for fertiliser demand.

• At end of 2007 and early 2008, the fertiliser industry was producing at full capacity, there was no slack in the system.

• All raw material input prices for fertiliser manufacture were increasing.

• Fertiliser imports and fertiliser prices reached record levels by mid 2008.

• The financial crisis then turned into a global economic crisis that led most developed economies into recession.

• Global demand of most commodities slowed drastically.

• Fertiliser sales and import demand collapsed, driven by weakening financial and economic conditions and extremely tight access to credit.

• Coupled with demand destruction and purchase deferrals, fertiliser pricing collapsed.

Top 10 World Grown FoodsMillion Tonnes

2007

Cow milk, 567

Potatoes, 309

Sugar Beet, 247

Vegetables, 245

Soy Beans, 221

Cassava, 215

Wheat, 606

Rice, 660

Corn, 792

Sugar Cane, 1,591

FAOSTAT PROD'N STATS

Worlds Top 10 Grown Foods

Corn Production

Corn Production2007

331.2

151.9

52.1

23.513.3

0.29.911.614.519.021.8

0.0

50.0

100.0

150.0

200.0

250.0

300.0

350.0

USA China Brazil Mexico Argentina India France Indonesia Canada Italy Australia

Million Tonnes

FAOSTAT

Wheat Production

Wheat Production2007

109.3

55.8

49.4

32.8

23.3 20.8 20.117.2 16.5

13.0

75.8

0.0

20.0

40.0

60.0

80.0

100.0

120.0

Million Tonnes

FAOSTAT PROD'N STATS

Rice Production2007

187.4

144.6

57.2

43.135.9

16.2

0.2

32.132.6

10.911.1

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

180.0

200.0

Million Tonnes

FAOSTAT PROD'N STATS

Rice Production

World Fertiliser Use by CropMillion Tonnes

2007

Other Grains, 8.1, 5%

Soybean, 6.3, 4%

Oil Palm, 2.6, 2%

Other Oil Seeds, 7.4, 4%

Cotton, 6.2, 4%

Fruits & Veg, 28.9, 17%

Other, 26.2, 16%

Sugar, 7.5, 4.4%

Wheat, 25.5, 15.1%

Rice, 24.3, 14.4%

Corn, 25.8, 15.3%

IFA APRIL 09

World Fertiliser Use by Crop

Outline of presentation

Fertiliser Supply and Demand

• Approximately 30% of global fertiliser production is exported.

• The fertiliser industry is unduly impacted by any policy that influences the supply of fertiliser in large consuming or exporting countries. Such as, fertiliser export taxes in China, or fertiliser subsidies in India.

• In early 2008, China imposed new export taxes on fertilisers at 25% - 35% rising to 150% -185% in Q3 of 2008. This had a significant effect on the global availability of Urea and DAP/MAP.

• Chinese exports of DAP and MAP for 2008 were reduced 50% compared to 2007. Close to 12% (2 Million Tonnes) of world traded DAP and MAP was removed.

• In the USA, it has been estimated that in 08/09 phosphate use declined between 15% to 20% (1.5 Million Tonnes) and potash use declined 35% to 40% (3 Million Tonnes). A decline in % use perhaps similar to that of Australia.

• Price of natural gas, the primary feedstock (ammonia) for DAP, MAP and Urea remains high.

• Capital costs for new plants are in order of USD 1.0 to USD 3.0 Billion.

World Fertiliser Consumption

World Fertiliser Consumption

90.4 91.8 97.4 101.0 99.4 102.0111.1

37.1 36.838.1 38.8 36.0 38.1

44.326.1 25.7

26.928.3

24.325.3

31.4153.6 154.3

162.4168.1

159.7165.4

186.8

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

180.0

200.0

04/05 05/06 06/07 07/08 08/09 e 09/10 f 13/14 f

Million Tonnes Nutrient

Nitrogen - N Phosphates - P205 Potash - K20IFA

IFA Fertiliser Supply Demand Estimates for 2009

Annual Comparison of IFASupply Demand Profiles

Forecasts for 2009

8.4

0.8

5.1

1.7

1.1

3.12.8

3.8

9.3

1.8%

24.5%

9.6%

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

Urea MAP/DAP MOP

Million Tonnes

May-07 May-08 May-09

Surplus as a %of 2009 production

IFA

Chinese Fertiliser Exports and Imports

CHINAEXPORTS - UREA, MAP, DAP

IMPORTS - POTASH

5.25

3.914.36

1.83

9.41

5.14

2.00

2.73

2.04

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

10.00

Urea MAP/DAP MOP

Million Tonnes Product

2007 2008 2009

Note: 2009 is YTD September andestimated October to December

EXPORTS

IMPORTS

CRU and CSBP

World Fertiliser Production & Exports

World Production andExports of Fertiliser

2007

27.2

18.9

144.1

55.4

11.66.4

36.4

45.0

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

DAP MAP Urea MOP

Million Tonnes

Production ExportsIFA

World Fertiliser Exports & Australian Imports

World Exports and Australian Imports

2007

11.58

6.45

36.43

45.03

0.21 0.45 0.89 0.300.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

40.00

45.00

50.00

DAP MAP Urea MOP

Million Tonnes

Exports ImportsIFA

Conclusions and Questions

• The world is not suddenly awash with grain stocks. World grain stocks have only slightly improved in terms of days of use.

• Basic story has not changed. Strong and steady growth, particularly in the large developing countries of Asia is projected to stress the world’s capacity to supply the resources needed to feed, clothe, house and power a growing and more affluent population.

• Food security and food price stability will likely return to the policy agenda.

• World import demand for the major phosphate and potash products is forecast to rebound sharply in 2010 quickly returning to the levels of 07/08.

• Unlike some other activities and pursuits, in Agriculture and in Fertilisers, Australia is not able to “punch above its weight” and we are not the tail that wags the dog.

• Fertiliser prices in Australia are ultimately set by world markets which can “move” in million tonne increments.

• Likely trend for prices in short term being stable to firmer.

POTASH

MAP, AGNP, DAP, DAPNP, SMAP

ROCK

UREA

POTASH, TSP

UAN

UREA

DAP, MAP

UREA, ROCK, SSP, MAP TSP

POTASH

SOA

Fertiliser Supply Sources to Australia

0 10 20 30 40 50 60 70 80 90

Provide notice to Ship Owner

10 day arrival window at loadport

Ship inspection, cleaning and load

Sailing Time ex USA, Russia

Bad weather, delays etc

Fertiliser Lead Times

Fertiliser Shipping Lead Times to Australia