Energy and commodity price benchmarking and market insights · North American fertilizer: Nitrogen...

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Energy and commodity price benchmarking and market insights

North American fertilizer:

Nitrogen context and trends For Pemex Petroquimica

Lauren Williamson 5 June 2013

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About Argus


• Strategy report examines merchant ammonia market

amid structural changes

• 100 pages for long-term decision making

• Country-by-county projections

• Shale gas revolution impact analyzed

• Phosphate fertilizer trends and impact

Argus FMB World Ammonia Outlook to 2027

Copyright © 2013 Argus Media Ltd. All rights reserved.

Contact [email protected] for table of contents or to order a copy

Argus Fertilizer

• International presence, global coverage

• 8 reports, 170+ price assessments • Robust methodology • Extensively used in indexation of

physical and financial markets • FMB founded in 1982; Argus

acquired FMB in 2011


Agenda


• Global perspectives on ammonia

• US & Canada, in context

• Fertilizer past, present, future

• Price trends

• Product preference trends

Global perspective


Global ammonia trade


• Traded ammonia =19-20 million t/yr

• Long term increases

• Almost 90% of nitrogen produced converted in situ

• Trend growth of last 15 yrs due to demand growth for technical

uses and phosphate production

• Most phosphate producers rely on imports • Saudi Arabia’s Ma’aden an exception

0

5

10

15

20

25

1995 2000 2005 2010

million t

onnes


Merchant (traded) ammonia market


• Global food security concerns will continue to spur fertilizer demand ◦ Cellulosic and next-generation biofuels to exacerbate

• Government, private industry will invest to meet fertilizer demand

• Long-term growth in merchant ammonia market will be limited, but a significant shift in trade patterns expected

Direct Application

11%

AN/CAN 12%

DAP/NP/ NPKs 49%

Technical 28%


Demand drivers –trade


Country Comment

Morocco OCP Jorf Phosphate Hub Programme (DAP/MAP)

US

Decline in direct application NH3 Less nh3 required for production of new phosphate types

Brazil, China Increasing domestic capacity to reduce imports

Japan Replacement of high cost capacity with imports (post Fukushima)

Latin America, India, Australia, Africa

New LDAN capacity

Australia, Madagascar, PNG

Metals Leaching, pollutants removal ‘Scrubbing’

East Asia Plastics/Textiles: MDI/TDI for rigid/semi polyurethane foams; acrylonitrile (Asia); Caprolactam (global trend decline, except China)


Supply drivers - trade


Country Comment

Australia Exports diverted to domestic LDAN

US New import substituting capacity (Mosaic & Dyno), but up to 5.3mn t imports tied and capacity limited by environmental planning and permitting

Trinidad Resumption of production, deliveries

Indonesia

KPA/KPI tonnage to be used in NPKs/urea once gas contracts expire 2018/2020

Ukraine, Russia Swing production, more upgrading expected but capacity/trade increases longer term

Middle East, North Africa, Latin America

Continued investments set against political difficulties in certain key producing regions


Anhydrous direct applications


• Majority of direct apps are in North America ◦ Some in Australia, Mexico, Denmark

• Direct applications in long-term trend decline

• Move towards other N products

• Increased environmental regulation of nitrogen fertilizer applications in West

Europe, North America

Source: IFA

0

500

1000

1500

2000

2500

3000

3500

4000

4500

199019911992199319941995199619971998199920002001200220032004200520062007200820092010

‘00

0 t

N

Canada

US


• Anhydrous ammonia – 82% N ◦ Transport, logistics more

expensive

◦ High N but less flexible

• Urea – 46% N ◦ Dry, bulk

◦ Greater risk for volatilization

• UAN- 28-32% N ◦ Fertigation, precision

◦ Flexible w/other products

The N options


• AN – 34% N ◦ More stable, doesn’t lose

N to atmosphere as easily as urea

◦ Volatile, explosive under certain conditions

◦ Market share is eroding

• Other custom solution or suspension blends or dry bulk mixes available ◦ Solutions applications

increasing, displacing ammonia

Canada & the US, in context


US vs Canada


Primary demand regions

US Canada

Wheat exports

25.5 mn t 18.5

Coarse grain exports

33 mn t corn

1.5 barley

GDP $15.08tn $1.4tn

Land area (excl water)

9.2 mn sq km

9.1 mn sq km

% Arable 18 6

Source: USDA, CIA World Fact Book


Country, cash crop profiles


Country Crop Area (‘000 ha) Rate (kg nutrient/ha) N-P-K

Consumption (‘000 tons) N-P-K

Canada corn 1,111 156-52-95 173-58-106

canola 4,894 75-20-15 367-98-73

wheat 11,162 50-26-6 558-290-67

US corn 31,205 150-70-90 4,681-2,184-2,808

soy 28,506 30-60-95 599-1,197-1,896

wheat 31,978 70-30-10 2,015-863-288

Source: FAO


Crop fertilizer rates


0

50

100

150

200

250

300

350

Canada corn US corn Canada wheat US wheat Canada canola US soy

Kg

nu

trie

nt/

ha

K

P

N

Source: FAO

N 59%

P 20%

K 21%

US consumption


Crop economics


Corn after soy

Corn after corn

Soy after corn

Wheat

Bushel/acre yield

190 180 56 75

Price $/bushel

6.00 6.00 12.50 8.50

Gross revenue

1,140 1,080 700 638

Total non-land costs

563 578 308 318

Return 577 502 392 320

Source: University of Illinois Corn most favorable,

barring significant price change or weather pattern


Corn production


0

200

400

600

800

1000

1200

2011/2012 2012/2013 2013/2014

Mill

ion

to

nn

es

World

US

359.17 mn t projected for US

US 37%

Mexico 2%

Canada 2%

Rest of World 59%

World corn production


US total consumption 1960-now


0

5,000

10,000

15,000

20,000

25,000

1960 1970 1980 1990 2000 2010

K20

P205

N

Source: USDA

Post-1980 decreasing P,K consumption

Fertilizers past, present, future


Historical points


1921 •First commercial US NH3 plant

1930s •Ammoniated solutions marketed

•10 NH3 plants on stream

•Urea sold to US market

1944 •NH3 directly applied to fields

1950s •Retail blending booms 1950s-1970s

•Nearly 60 NH3 plants on stream by 1960

1970s •Energy shortage and costs become growing concern

1980 •5500 blending units across US

•Several thousand fluid fertilizer retail plants

1990s-2000s

•High gas costs squeeze margins, price numerous plants out of the market

Source: Argus, market survey, TFI


US NH3 production, consumption 2002-2011


0

2 000

4 000

6 000

8 000

10 000

12 000

14 000

16 000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

'00

0 t

nu

trie

nt

N

Production

Apparent Consumption

Source: IFA

Nearly 3mn t decrease in production 2002-2005


US urea production, consumption 2002-2011


0

1 000

2 000

3 000

4 000

5 000

6 000

'00

0 t

nu

trie

nt

N

Production

Apparentconsumption

Consumption

Production


US N production capacity shifts 2005-2012


0

2000

4000

6000

8000

10000

12000

14000

2005 2006 2007 2008 2009 2010 2011 2012

in '0

00

pro

du

ct

sho

rt t

on

s

Ammonia

Urea,solid

UAN 28

Source: TFI


US production mostly near end-users, river transport, pipelines

NH3 imports from Canada, Ukraine, Trinidad

◦ Large volume to Tampa, Florida for phosphate production

Urea from Middle East, Egypt, Indonesia

UAN from Black Sea/Baltic, Egypt, Trinidad

N production, trade flows 2012


imports

imports

production site imports

Anhydrous or aqua

20%

Fertilizer feedstock

51%

Industrial 29%

Ammonia end-use


N fertilizer benchmarks vs nat gas


0

2

4

6

8

10

12

14

16

0.0

100.0

200.0

300.0

400.0

500.0

600.0

700.0

800.0

900.0

Jan

19

97

Jul 1

99

7

Jan

19

98

Jul 1

99

8

Jan

19

99

Jul 1

99

9

Jan

20

00

Jul 2

00

0

Jan

20

01

Jul 2

00

1

Jan

20

02

Jul 2

00

2

Jan

20

03

Jul 2

00

3

Jan

20

04

Jul 2

00

4

Jan

20

05

Jul 2

00

5

Jan

20

06

Jul 2

00

6

Jan

20

07

Jul 2

00

7

Jan

20

08

Jul 2

00

8

Jan

20

09

Jul 2

00

9

Jan

20

10

Jul 2

01

0

Jan

20

11

Jul 2

01

1

Jan

20

12

Jul 2

01

2

Jan

20

13

$/m

mB

tu

$/s

ho

rt t

on

Urea barge

Tampa ammonia

Henry Hub gas

Squeezed margins

Source: Argus, EIA

Meanwhile… shale gas revolution

prompts decoupling


Debottleneck Brownfield & Revamp

Greenfield Other

Announcements 7 6 10 5 (Coal, coke, biomass)

Some key players Koch, Agrium, PCS, LSB, Rentech

CF, IPL, Koch, Mosaic, Agrium (Borger, Redwater)

OCI, CHS, OVR, NPN, etc

Miss Power, Summit, CVR, Bionitrogen, Dakota Gas

Probability High Med high V. low-med (depending on project)

Low-med (depending on project)

Considerations None Increasing market competition

High capex, longterm gas/crop prices

Tax, financing, process viability

Intended US & Canada N projects



• 13 mn t/yr dry, bulk ferts transported by barge ◦ Only 33 NH3 barges in operation; UAN needs liquid barges, competes against oil

• 2.5-3 mn t/yr NH3 transported by pipeline ◦ Nustar, Magellan transport majority vs. other lines in US Gulf, Florida

Transport


Other transport

62%

Barge 38%

Dry bulk transport


US ammonia capacity projections


0

2

4

6

8

10

12

14

16

2012 2017

mn

to

nn

es

US

• Domestic capacity increases and tied tonnage to impact import dependence

• Domestic projects likely to face delays ◦ Permitting, environmental

concerns slow the process

◦ Difficulties for non traditional entities

• US NH3 import demand to reduce 50% by 2027

Source: IFA


Increasing capacity trends


◦ Most new NH3 capacity intended for upgrading

◦ Industrial consumption increasing on increased production of

downstream products

◦ Liquidity increasing?

‐ More production in the US Gulf, esp around New Orleans

‐ Transport/logistics challenges

• New barge costs $13-15mn

• Nustar, Magellan used near capacity

◦ Tampa benchmark viability in question

‐ Mosaic reducing NH3 consumption on increased added-value

phosphate production (MicroEssentials)

‐ Considering NH3 plant at Faustina

• Reduce import reliance down to around 200-300,000t/yr

Price trends


Farmer prices 1960-2012


0

100

200

300

400

500

600

700

800

900

$/s

ho

rrt

ton

to

far

me

r

Ammonia

UAN 30

Urea

Source: USDA

corn $1.40/

bu

corn $3.10/

bu

corn $2.62/

bu

corn $2.10/

bu

corn $4.00/

bu


• N prices strong positive correlation to corn

• UAN to corn R 0.69; NH3 to corn R 0.73; urea to corn R 0.56

• Urea had held stronger correlation until latest downward correction in global prices against still elevated corn prices

Fertilizer to corn 2008-2013


0.00

100.00

200.00

300.00

400.00

500.00

600.00

700.00

800.00

900.00

0.0

100.0

200.0

300.0

400.0

500.0

600.0

700.0

800.0

900.0

Jun

20

08

Au

g 2

00

8

Oct

20

08

De

c 2

00

8

Feb

20

09

Ap

r 2

00

9

Jun

20

09

Au

g 2

00

9

Oct

20

09

De

c 2

00

9

Feb

20

10

Ap

r 2

01

0

Jun

20

10

Au

g 2

01

0

Oct

20

10

De

c 2

01

0

Feb

20

11

Ap

r 2

01

1

Jun

20

11

Au

g 2

01

1

Oct

20

11

De

c 2

01

1

Feb

20

12

Ap

r 2

01

2

Jun

20

12

Au

g 2

01

2

Oct

20

12

De

c 2

01

2

Feb

20

13

Ap

r 2

01

3

cen

ts/b

ush

el

$/s

ho

rt t

on

UAN barge

Tampa cfr (st)

Urea barge

Cbot corn

Relationship to change in future??


• Nitrogen complex tightly correlated

• On average, UAN at slight premium to urea, ammonia at greatest discount

• UAN more closely follows urea (R 0.89) from 2008-2013; however Jan-May 2013 a departure from the trend (R 0.24)

Cost per unit N


0

2

4

6

8

10

12

14

16

18

Jun

20

08

Au

g 2

00

8

Oct

20

08

De

c 2

00

8

Feb

20

09

Ap

r 2

00

9

Jun

20

09

Au

g 2

00

9

Oct

20

09

De

c 2

00

9

Feb

20

10

Ap

r 2

01

0

Jun

20

10

Au

g 2

01

0

Oct

20

10

De

c 2

01

0

Feb

20

11

Ap

r 2

01

1

Jun

20

11

Au

g 2

01

1

Oct

20

11

De

c 2

01

1

Feb

20

12

Ap

r 2

01

2

Jun

20

12

Au

g 2

01

2

Oct

20

12

De

c 2

01

2

Feb

20

13

Ap

r 2

01

3

$/u

nit

of

nit

roge

n

UAN

Ammonia

Urea


Domestic ammonia prices


200.0

250.0

300.0

350.0

400.0

450.0

500.0

550.0

600.0

650.0

700.0

$/s

ho

rt t

on

Domesticproducerprofitmargin(est)

Tampa cfr

• Producer margins been

above $400/st this year

• Added US NH3 capacity

to weaken domestic

price relationship to

Tampa?

• Increased capacity

abroad to put pressure

on Tampa prices

(beyond fob origin +

freight)


• Location of new

plants will impact

regional variations

• E and W Corn Belt

premiums to

decrease

• Security of supply

may decrease N

price volatility and

seasonal swings

Other trends…


400.0

450.0

500.0

550.0

600.0

650.0

700.0

750.0

800.0

850.0

900.0

July2012

Jan2013

May

$/s

ho

rt t

on

Tampa cfr

Oklahoma ex-works

E Corn Belt

W Corn Belt

Product preference trends


US N direct application trends


0

2000

4000

6000

8000

10000

12000

14000

1970 1980 1990 2000 2010

'00

0 s

ho

rt t

on

s p

rod

uct

NH3

Urea

AN

UAN

Source: APPFCO, Interchem


• Urea used widely

• NH3 concentrated in

Midwest

◦ Proximity to supply,

pipelines

• UAN widely used but

28% used further

north

• AN preferred in South,

Southeast

Corn acre concentration



• NO3 (nitrate) ◦ Preferred, ideal for uptake, instant supply

◦ Risk of leaching esp. in high temps and water

• NH3 (ammonia) converts to NH4 (ammonium) in soil ◦ Ammonification

◦ Soil needs moisture to attach to organic matter

• NH4 absorbed at low rates ◦ Takes time to convert to NO3 (nitrification) at warmer temps

• Urea NH4 by urease enzymes ◦ Risks some volatizing to NH3 and escapes to atmosphere

(denitficiation)

◦ Urease inhibitors and sulfur or polymer coatings to slow

Getting the right N


NH3 NH4 NO3


Nitrate availability over time


0

10

20

30

40

50

60

70

80

90

100

0 Weeks 3 Weeks 6 Weeks

Anhydrous

Anhydrous + inhibitor

Urea

Urea+inhibitor

UAN

AN

UAN

Source: University of Kentucky


• Safety ◦ NH3 tank inspections

◦ Risk of theft

◦ Operational safety courses mandatory by DOT and under HMR

• Transportation ◦ NH3 barges limited, old fleet

◦ Rail tariffs cost-prohibitive – risk and hazard

◦ Trucking common, causes municipal concerns on leaks/accidents

• Environment ◦ NH3 fall dates to assist w/ appropriate temperature observance

◦ Mandatory vs voluntary BMPs (state specific) and precision ag techniques

◦ Nitrogen credits reducing runoff into watersheds

• AN ◦ Dept of Homeland Security monitored

◦ Further restrictions expected after West, Texas incident… ‐ Could impact other N products such as NH3

Evolving regulatory environment



• Ammonia outlook ◦ 19-20mn t/yr traded, trade patterns to change

◦ Growth trend on technical, phosphate demand increases

• North America market ◦ Corn is king; crop-fertilizer price connection strong

◦ Nat gas prices inspiring investment, increasing N capacity to pressure pricing

• Trends ◦ Regulatory environment tightening

◦ Product preference and techniques are evolving, though overall fertilizer demand is stable

Key takeaways


Any questions?

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Porto

Johannesburg

illuminating the markets Copyright © 2013 Argus Media Ltd. All rights reserved.

Lauren Williamson

Editor, North American Fertilizer

Email: [email protected]

Phone: +1) 713.429.6355

Office: Houston, TX 77057

URL:

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Copyright © 2013 Argus Media Ltd. All rights reserved. All intellectual property rights in this presentation and the information herein are the exclusive property of Argus and and/or its licensors and may only be used under licence

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