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ON THE COVER
CONTENTS
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MAGAZINE | JULY/AUGUST 2017
03 Guest Comment
05 World News
12 Asia: A Global OutperformerAsia will continue to lead in terms of both fertilizer production and consumption, Aurelia Britsch, BMI Research, Singapore, predicts.
18 Fortune Favours The BraveChallenges abound as ammonia fertilizer compounds look to emerge from their commodity down cycle, Gordon Cope, World Fertilizer Correspondent, reports.
25 Simulations Make SavingsKeishi Sato, Toyo Engineering, Japan, demonstrates how process simulation technology contributes to savings throughout the entire lifecycle of urea plants.
28 Rise To The ChallengeDr Tarek El Hawary, thyssenkrupp Industrial Solutions, Germany, details the safe startup of one of Egypt’s largest fertilizer complexes for Egyptian Nitrogen Products Co.
35 Breaking From ConventionRameshwar Hiwale, Bernd Kandziora and Carrie Lalou, Linde Engineering North America, USA, introduce an ammonia concept that uses fewer processes to reduce costs in a volatile market.
40 The Old, The New And The Revamped Dr Maxim Larin and Dr Jörg Weidenfeller, ARVOS GmbH | SCHMIDTSCHE SCHACK, Germany, discuss the necessary modifications for revamping nitric acid plants.
48 Under PressureI. Cerea, Casale SA, Switzerland, compares dual-pressure with mono-pressure nitric acid plants.
56 Plant ProgressionMichael Groves, thyssenkrupp Industrial Solutions, Germany, discusses key nitric acid technological developments.
61 Designing To The Razor’s EdgeDoug Azwell and Evan Uchaker, MECS, Inc., USA, discuss the impacts of overdesigning plant emissions abatement systems.
67 Flaring UpKirsten Berg, Zeeco Inc., USA, outlines specific design considerations for flaring in ammonia and urea production.
71 Closer InspectionAlexander Dyukov and Natalia Borisova, Krastsvetmet, Russia, along with Oleg Trifonov and Olha Simbirska, Technopromimpex, Ukraine, examine applied CFD simulation as an instrument to detect problems in NA plants.
76 A Clearer PictureThomas Fortinberry, AMETEK Land, UK, details fixed thermal imaging for steam methane reformers and how effective monitoring of process temperature data can provide better asset management.
81 Trusting The SensesRené Braun and Peter Maas, Bruker Optik GmbH, Germany, discuss the permanent monitoring of an ammonia storage facility using a remote sensing system.
85 A New PerspectiveRudi ter Harkel, MAN Diesel & Turbo, Switzerland, and Dr Christoph Jakiel, MAN Diesel & Turbo, Germany, examine a new concept for air compression within the ammonia production process.
91 Pump It UpFrank Bungartz, Bungartz, Germany, considers the efficacy of using special horizontal centrifugal pumps in the fertilizer industry.
95 A Green Future For FertilizerPietro de Michiell, Bedeschi, Italy, describes how eco-friendly fertilizer handling equipment is crucial to achieving sustainable shiploading operations.
99 Prime The PumpRobert Mollath, P.E., Ebara International Corp., Cryodynamics Division, USA, outlines magnetically driven equipment for aggressive liquid environments at ammonia production and processing plants.
The newly completed ammonia plant for J.R. Simplot in Rock Springs, Wyoming, US. The plant is the first in North America to employ the Linde Ammonia Concept (LACTM), a plant design that minimises process steps and equipment, resulting in lower investment and operating costs.
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JULY/AUGUST 2017 | WORLD FERTILIZER | 3
LAURA CROSS, NITROGEN RESEARCH MANAGER, INTEGER RESEARCH
The outlook for the nitrogen market: it’s all about ChinaThe urea market remains in a state of slow demand and weakening price ideas as the market enters the quietest period of the year. Indian buying has mostly come to an end; and elsewhere, spot buyers have been holding out in anticipation of even lower prices.
A further downside risk for the nitrogen market is the outlook for Chinese export volume in 2H17 now that the peak domestic season is drawing to a close. Domestic operating rates appear to be improving, with utilisation reported close to 60% (at the time of writing). There is uncertainty as to whether plants will reduce operating rates in 3Q once domestic demand is over or if
increased pressure will be put on the international market by such levels of excess supply. There are mixed views over the extent to which the country’s highest-cost urea plants will adhere to production economics, with some speculating that provincial administrations may choose to give favour to local labour markets by running loss-making plants to sustain employment.
Integer’s view is that there is unlikely to be a sustained increase in production volumes given the trend of capacity rationalisation in China and a move towards market-driven decision making that led to 7 million t of urea capacity closing in 2016. This continued capacity rationalisation would increase operating rates by lowering the capacity denominator.
Furthermore, the Chinese Nitrogen Fertilizer Association (CNFA) has become a persistent and vocal advocate against Chinese producers reducing price ideas below cash costs, and while the association has no legal power to enforce its views, producers have been reasonably disciplined and followed its price guidance in recent years. If nothing else, a physical lack of international demand will limit volumes able to move to ports if warehouse capacity cannot be cleared, and this will cap the volume of unprofi table exports from China in the coming quarter.
The Chinese Ministry of Industry and Information Technology (MIIT) has announced a research programme aimed at optimising the country’s fertilizer capacity. As part of the programme, fertilizer capacity that is considered to be outdated would be forced to close but new and advanced capacity will be encouraged to expand. The government will subsidise the construction and development of more advanced capacity, if the owners are willing to switch off obsolete capacity.
The CNFA has reported that about 13 million tpy of urea capacity is likely to close between 2015 – 2020. Under the MIIT research programme, despite these closures, it is envisaged that overall nominal fertilizer total capacity volume will not change signifi cantly if replacement and expansion of other capacity is encouraged and subsidised.
In general, fertilizer capacity that is considered to be outdated is mainly located in central cities or close to residential areas. These plants are required to be relocated because of uneconomic and emission issues. Under the research programme, these operations could see upgrades to technology and expansion of scale, moreover, the government could subsidize the relocation.
Some fertilizer producers are closing obsolete operations in favour of modern larger capacity projects. For example, Henan Jinkai Yanhua closed 200 000 tpy of ineffi cient urea capacity, but a 600 000 tpy of new urea capacity will be fi nished in 2017.
We are often asked, why do some industries in China have signifi cant structural overcapacity? The main reason is excessive government intervention. For example, steel, cement and coal were strongly supported and subsidised in the past, as the government stimulated the economy through fi scal stimulus, leading to serious oversupply. Now, the government has been forced to shut down older, less effi cient capacity in these industries. The position of the fertilizer industry situation is similar to that of coal and steel. However, considering that the primary objective for the fertilizer sector is to stabilise domestic fertilizer prices and protect small farmers’ interests, it seems unlikely that China would pursue policies that would lead to a substantial reduction in fertilizer capacity, which might negatively infl uence fertilizer price stability or availability.
Note Additional reporting from Lynn Wang, China Research Manager.
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WORLD NEWS
JULY/AUGUST 2017 | WORLD FERTILIZER | 5
One of XIO Group’s portfolio companies, COMPO Expert GmbH, has completed the modernisation of its Krefeld
production facility for slow-release fertilizers.Since 2013, approximately €65 million has been
invested in reconstructing and developing the site to make it a state-of-the-art facility. The factory and production processes have been certified according to ISO 9001, ISO 14001 and ISO 50001, and is now at 100% production levels.
The COMPO Expert R&D Technical Center is also located within the updated plant. This centre has been essential for the improvement of product quality and optimisation of the production process. This laboratory
allows for the development and preparation of product prototypes in small scales to be used in agricultural field and greenhouse studies pre-production.
COMPO Expert offers a range of slow-release fertilizers, special mineral fertilizers, coated fertilizers, nutrient salts, liquid fertilizers, trace nutrients, as well as soil improvers and plant care products.
“With the completion of its ultramodern facility in Krefeld, Germany, a high-quality product range and a strong team, COMPO Expert GmbH is well positioned to further benefit from global growth markets, especially in Asia and Latin America,” said Joseph Pacini, CEO and Partner of XIO Group.
GERMANY Plant modernisation efforts completed in Krefeld
F luor Corp. has signed a Memorandum of Understanding (MoU) with Saudi Arabian Mining Company (Ma’aden) to
support future Ma’aden projects that are located both within and outside of Saudi Arabia.
Under the MoU, Fluor would be considered for conceptual, pre-FEED, FEED, EPC management and programme management contracting services for Ma’aden’s future projects.
Fluor and Ma’aden have co-operated for almost 10 years. During that time, Fluor has executed work in excess of US$15 billion for projects, including the Ma’aden aluminum
complex and the ongoing Umm Wu’al phosphate project.“This understanding would allow both parties to increase
their involvement in Saudi Arabia and expand their services outside the Kingdom,” said David Seaton, Fluor’s Chairman and CEO, who signed the MoU at the inaugural Saudi-US CEO Forum in Riyadh recently.
“Fluor’s legacy in Saudi Arabia dates back to 1947 and we have a strong partnership with Ma’aden, having delivered several of their projects. We look forward to helping them advance their future projects as they continue to expand and diversify their business,” Seaton added.
SAUDI ARABIA MoU signed regarding development of future Ma’aden mine projects
EuroChem Group AG has acquired a minority interest in a producer of liquid NPK blends, Hispalense de Liquidos,
which is located in Seville. The deal allows EuroChem access to additional production
capability and technical expertise. The price and other terms of the deal have not been disclosed.
Hispalense’s blending and storage unit has direct access to Seville’s city port. The facility has a production capacity of up to 1500 tpd, and current production levels are approximately 50 000 tpy of various liquid blends based mainly on UAN, phosphoric acid, MAP, urea and potash. Hispalense has storage
capacity for up to 21 000 t of liquid and solid raw materials. The company produces numerous customised formulas of fertilizer blends.
Dmitry Strezhnev, EuroChem’s CEO, commented: “The acquisition of a stake in Hispalense, a well-established player in the Spanish fertilizer market, reflects our intention to expand our product portfolio.”
Juan Romero, Chairman of Hispalense, added: “This is a win-win opportunity for us, giving us the ability to market some of EuroChem’s value-added fertilizers in Spain and to further promote our liquid fertilizer technology worldwide.”
SPAIN EuroChem set to acqire stake in Spanish fertilizer producer
WORLD NEWS
6 | WORLD FERTILIZER | JULY/AUGUST 2017
IN BRIEFNorth AmericaK+S Potash Canada (KPSC) has accepted its first domestic railcars built by National Steel Car (NSC) in Hamilton, Ontario, Canada. The company will start taking delivery of 200 cars in August, with more cars being added over the next years. The railcars will transport potash from the company’s Bethune mine in Saskatchewan to its North American clients.
Saudi ArabiaSaudi Arabian Mining Company (Ma’aden) has commenced initial diammonium production at its subsidiary, Ma’aden Waad Al Shamal Phosphate Co. (MWSPC).
During initial production, MWSPC will gradually ramp-up until it reaches the 3 million t production capacity.
Ma’aden, The Mosaic Company and Saudi Basic Industries Corp. own 60%, 25% and 15%, respectively, of the joint venture that is developing the Waad Al Shamal phosphate project.
CanadaPotash Corp. of Saskatchewan Inc. (PotashCorp) and Agrium Inc. have announced that once their anticipated merger transaction closes, the new company will be named Nutrien.
The companies are working through the regulatory and approval processes, and expect the transaction to close in 3Q17, subject to the satisfaction of customary closing conditions, including receipt of the necassary approvals.
P lymouth Minerals Ltd has released the shallow depth, high-grade assay results for drill hole BA-002, one of three holes drilled by
Plymouth (phase 1) on its 100% owned Banio potash project in Gabon.The company has reported that it believes to have intersected
laterally extensive potash mineralisation on the Alpha Target, following downhole geophysical gamma data from the neighbouring drill hole BA-003. Assays are pending for BA-003. Plymouth Minerals has indicated that Alpha Target has the potential to host a high-grade resource, which is in line with the company’s previous exploration target announcement back in November 2016.
Managing Director, Adrian Byass, stated: “Multiple intersections drilled on the Alpha Target, which are in excess of 31% KCl, are high-grade by industry standards. The return of this tenor of mineralisation in the first phase of the exploration programme is extremely encouraging. In addition, the geology in the successfully completed exploration hole BA-003 drilled 2.05 km from BA-002, for which assay results are pending, indicates that similar widths of potash mineralisation are present and both holes are open in all directions laterally. Our team has delivered excellent results and is validating this unquestionably attractive high-grade potash province.”
Plymouth is currently planning the next stages of exploration at Banio, and is progressing the granting of Mamana, its other historically drilled, high-grade potash project in Gabon. The Mamana project was drilled for potash and has recorded shallow, high-grade intercepts, including 4.35 m at 46% KCl from 384 m, and 9.5 m at 29% KCl from 433 m.
GABON Banio potash project drill hole results announced
Potash Ridge Corp. has reported that its wholly-owned subsidiary, Utah Alunite LLC, has made the fi nal installment of US$668 936 to the Utah
School and Institutional Trust Lands Administration (SITLA) pursuant with the terms of converting its exploration and option agreement for the Blawn Mountain property into a mining lease.
Following this final payment, Potash Ridge has fulfilled its obligations with respect to the conversion, and consequently has rights to develop the Blawn Mountain property.
Guy Bentinck, Potash Ridge’s President and CEO, commented: “Securing unencumbered rights to developing Blawn Mountain is a major milestone in advancing this world-class project. Blawn Mountain will be a long-life, low-cost producer of potassium sulfate strategically located in North America’s underserved market. Development of Blawn Mountain continues, with the major activities being advancing detailed engineering, securing offtake, and project financing.”
USA Blawn Mountain mining lease secured
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WORLD NEWS
The TikhvinChemMash plant (part of United Wagon Co.) has delivered a batch of new generation tank cars for
transportation of ammonia to URALCHEM.TikhvinChemMash’s new tank cars offer increased capacity
due to the enlargement of cistern size to 92.7 m3 and of load capacity to 60.2 t. Maximum cargo volume is increased by 5 – 10%.
The new tank cars also include a shade protection system for transportation of ammonia with filling temperature as low as -33°C, built-in drainage and safety valves, and dimensional design that enables easy handling in loading bays of various types. The cars have a service life of up to 40 years.
Vsevolod Kovshov, Director of URALCHEM-TRANS LLC, commented: “Our company is modernising its transport assets. To date, the share of up-to-date rolling stock in the URALCHEM-TRANS fleet is about 10%. Expansion of the range of specialised railcars helps to improve our logistics work. We plan to expand our partnership with United Wagon Co. to achieve gradual increase in the share of up-to-date rolling stock in our fleet.”
RUSSIA New generation tank cars purchased for ammonia transportNEWS
HIGHLIGHTS
• Catalan Supreme Court approves Sallent mine extension
• PhosAgro to merge into Apatit
• CRU provides insight on West African fertilizer
Visit our website for more news:
www.worldfertilizer.com
The fertilizer industry’s contribution to a healthy economy was applauded by US President Donald Trump at a recent
event in Ohio. President and CEO of CF Industries Inc. and The Fertilizer Institute (TFI) Vice Chairman, Tony Will, joined President Trump for a speech about the country’s ageing inland water transportation infrastructure.
While the US fertilizer industry has added several manufacturing jobs, plans to build new manufacturing plants or re-open and expand existing facilities will add billions of dollars to the US economy. Each new facility will create jobs for construction workers, as well as permanent jobs for individuals who will work in that plant.
“We extend sincere thanks to President Trump for recognising the fertilizer industry,” said TFI President Chris Jahn. “Each year, more than 13 million t – over one-third of all fertilizer used by US farmers – is shipped on the nation’s inland waterways.”
“Modern transportation infrastructure to support just-in-time delivery of fertilizers will provide a measure of added certainty for our nation’s two million farmers,” Jahn added.
USA Trump acknowledges fertilizer industry’s contribution to a healthy economy
8 | WORLD FERTILIZER | JULY/AUGUST 2017
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WORLD NEWS
10 | WORLD FERTILIZER | JULY/AUGUST 2017
DIARY DATESDIARY DATES
North American Fertilizer Transportation Forum20 – 22 August 2017
Alberta, Canada www. fertilizercanada.ca/about-fertilizer-canada/
events/north-american-fertilizer-transportation-forum
Fertilizer Canada 72nd Annual Conference 21 – 23 August 2017
Alberta, Canadawww. fertilizercanada.ca/about-fertilizer-canada/events/fertilizer-canada-72nd-annual-conference
62nd Annual Safety in Ammonia Plants and Related Facilities Symposium
10 – 14 September 2017New York, USA
www.aiche.org/conferences/annual-safety-ammonia-plants-and-related-facilities-symposium/2017
Turbomachinery & Pump Symposia12 – 14 September 2017
Texas, USAwww.tps.tamu.edu
TFI World Fertilizer Conference17 – 19 September 2017
San Francisco, USAwww.tfi .org/conferences
ANNA Conference 20171 – 6 October 2017
Austin, USAwww.an-na.org/2017-anna-conference
Sulphur 20176 – 9 November 2017
Atlanta, USAwww.crugroup.com/events/sulphur
Fertilizer Latino Americano 2018 Conference22 – 24 January 2018
São Paulo, Brazilwww.crugroup.com/campaigns/fertilizer-latino-
americano-2018-conference
Environmental assessment approval for the Milestone phase I project has been given to Western Potash Corp. by Saskatchewan Ministry of
Environment.The company received a fi nal engineering report from AMEC Foster
Wheeler and Agapito Associates Inc. for the proposed Milestone project, which was subject to review under the Environmental Assessment Act.
The initial phase I project design was based on a scoping study, and was approved by the Ministry in 2015. Following changes to the scoping study design, namely the introduction of a crystallisation pond for potash recovery and the plant site location, Western Potash resubmitted the project design for review by the Ministry. Subsequently, the Ministry determined that no Environmental Impact Assessment for the project will be required. Therefore, Western Potash is authorised to proceed with the construction of the phase I project subject to regulatory permitting requirements.
Western Potash secured an off-take agreement with China BlueChemical Ltd in October 2016. Given the transportation costs and the low Chinese market price, Western Resources has been actively exploring the North American market and has achieved solid progress.
In the meantime, Western Potash continues to advance detailed engineering on the project in advancement of construction. The project will use selective solution mining techniques, which result in lower CAPEX and OPEX costs compared to conventional solution mining.
CANADA Milestone phase I project recieves environmental assessment approval
Kalium Lakes Ltd (KLL) has signed a non-binding off-take Memorandum of Understanding (MoU) with WITTRACO
Düngmittel GmbH (WITTRACO) for the sale of sulfate of potash (SOP) from the Beyondie SOP project.
Under the MoU, KLL proposes to sell approximately 20% of the project’s annual SOP production to WITTRACO during the first five years of production.
The Beyondie SOP project comprises 15 granted exploration licences and a miscellaneous licence covering an area of approximately 2400 km2. This sub-surface brine deposit will supply an evaporation and processing operation located 160 km southeast of Newman.
WITTRACO intends to support the development of the Beyondie SOP project. Moreover, subject to future discussions, KLL and WITTRACO will seek to convert the MoU to a binding sales contract.
Brett Hazelden, Managing Director of KLL, said: “This non-binding MoU is another major step in the development of KLL’s Beyondie SOP project. To establish a solid relationship with an organisation of WITTRACO’s global standing reinforces our belief in the value and significance of the project.”
AUSTRALIA MoU signed for SOP sales at Beyondie
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ASIA WILL CONTINUE TO LEAD IN TERMS OF BOTH FERTILIZER PRODUCTION AND CONSUMPTION, AURELIA BRITSCH, BMI RESEARCH, SINGAPORE, PREDICTS.
12
In the long term, as well as being a leader in fertilizer production, Asia will drive the world's fertilizer consumption, with China and India continuing to lead fertilizer demand in absolute terms. In terms of
growth, India and Southeast Asia will dominate. Consequently, the region will remain dependent on imports to cover its nutrient needs.
China will be a global outperformer in terms of fertilizer production until 2020, as it will strengthen its leading position in the nitrogen and phosphate production segments. While the country's phosphate capacity will continue expanding, its nitrogen
production will remain at a high base, despite growing challenges.
Meanwhile, in India, the long-discussed fertilizer subsidy policy reform is progressing at a slow pace. The 'Direct Benefit Transfer' scheme is under a trial run, but the much-needed urea pricing reform project has been stalled.
Increasing fertilizer demandLooking first at trends in the short term, BMI Research expects fertilizer demand in Asia to rebound in 2017 and 2018, in line with crop production and driven by the
13
14 | WORLD FERTILIZER | JULY/AUGUST 2017
recovery from the El Niño episode of 2015 – 2016. The weather event, which primarily ran from May 2015 – May 2016, brought dry weather to large parts of the region, leading to sharp declines in agricultural production in many key producers. In terms of agricultural output, the rebound will be most visible in Southeast Asian countries, as the sub-region felt the strongest impact from last year's El Niño.
The outlook for crops of the 2017/2018 season is positive across Asia, amidst positive summer 2017 monsoon prospects in India and strong growth in Southeast Asian output across most commodities. A notable exception is China, where the outlook for crop production in 2016/2017 and 2017/2018 is less positive due to the government's ongoing reform of its local price policy and production support programmes. Lower support for corn plantings and general uncertainty around the future of the policies for several commodities will lead to a decline in China's grain production in the ongoing 2017/2018 season. This will weight on fertilizer application.
Strong long-term growth in India and Southeast AsiaIn the longer term, China and India are expected to remain the largest consumers of fertilizers in absolute terms. China's long-term demand will stagnate, if not decline, due to both subdued agricultural production growth until 2021 and the fight against fertilizer-linked degradation of soil quality.
India's growth is anticipated to be robust, but slightly slower than in the past, amidst the ongoing rise in fertilizer application efficiency, through the spread of neem-coated urea and the adoption of the direct benefit transfer system, amongst other government-backed changes. Meanwhile, Southeast Asian countries present the strongest opportunities in terms of fertilizer growth, thanks to a bright production expansion outlook.
As mentioned previously, in the long term, as well as a leader in fertilizer production, Asia will also drive the world's fertilizer consumption. India will outperform other large agricultural producers in terms of output growth over the next five years. Production growth will be mainly driven by a slow rise in yields, improvement in supply chain efficiency, strong government support and robust demand growth for manufactured foodstuff. India's agribusiness market value will expand by a robust 6.3% annually over the 2017 – 2021 period according to BMI Research forecasts, bolstered by a positive production outlook and rising global prices.
This will place India among the global outperformers in terms of production value
growth in the coming years. However, India's fertilizer consumption growth will be slightly slower than in the past. This is largely because the country has embarked on a long-term trend towards fertilizer application efficiency. For example, since the end of 2015, the Indian government now requires that all urea fertilizer consumed in the country be neem-coated, which allows for a slower and more efficient release of the nutrients
Figure 1. Graph showing agricultural production growth (in percentage year-on-year). BMI Research predicts strong fertilizer demand with a positive 2017 – 2018 crop outlook.
Figure 3. Graph comparing total fertilizer consumption in Africa, Asia, Europe, the Americas and Oceania in million nutrient tonnes.
Figure 2. 2014 fertilizer production in million nutrient tonnes. China is the largest producer of nitrogen and phosphate.
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into the ground. The 'Direct Benefit Transfer' policy is another sign that the Indian government is looking at increasing efficiency in the sector.
Regarding China, the country will record subdued growth in output for major crops, mainly due to severe land constraints and soil degradation issues. However, production will remain elevated compared with historical trends, as Chinese authorities are committed to maintaining a high level of self-sufficiency for key staples, including rice and wheat. The country will also see a growing diversification of its grain and oilseed production. Meanwhile, China is working towards keeping a ceiling on total fertilizer use as over-application over several decades led to a degradation of soil quality. However, the region's agronomic practices will continue to rely extensively on fertilizers for now. As a result, BMI Research expects China's long-term demand for fertilizers to stagnate, if not decline slightly on a five year horizon.
Southeast Asian countries are predicted by BMI Research to outperform the Asian region as a whole in terms of fertilizer consumption growth, driven by robust agricultural production. The region boasts a diversified and well-endowed agriculture sector, which will be supported in the coming years by robust private investment, protective government policies, growing regional trade and strong import demand from China.
Favourable macroeconomic trends will also boost local consumption and incentivise further local production. BMI Research is particularly positive on the outlook for rice, sugar, palm oil and fruit production. In terms of countries, Thailand, Vietnam, Indonesia and the Philippines will see their agricultural market value growth expand at a fast pace according to BMI Research data, and accelerate from the growth recorded over the past five years, when the sector was negatively impacted by El Niño and low international agricultural prices in general.
For example, Indonesia's agribusiness market value will grow by 5.9% annually on average over the 2017 – 2021 period, as compared with the 0.3% recorded over 2012 – 2016. The ongoing opening of new promising agricultural markets, including Myanmar, also bodes well for future fertilizer demand in Southeast Asia. These regional trends will be particularly positive for nitrogen (used for rice, fruits and vegetables) and potash consumption growth. For example, palm oil and sugar crops need more potash-based nutrients than grains.
China's fertilizer productionSince its phosphate capacity will continue to expand and its nitrogen production will remain at a high level, China is projected to remain the world's largest producer of nitrogen and phosphate fertilizers until 2020. Owing to continued investment in production capacity, the country will maintain this standing despite challenges from the domestic coal sector,
slower crop production growth, stricter environmental regulations and growing competition in key export markets.
In the case of nitrogen, these increasing challenges will stem from lower coal production, subdued crop production and a government push to curb fertilizer overuse. Moreover, despite the use of coal instead of natural gas, Chinese nitrogen producers still face some of the highest costs in the industry, as other global producers have direct access to natural gas that is cheaper than Chinese coal. Although production capacity of ammonia and urea is already contracting, it is doing so from a high base rate. Therefore, overall, BMI Research sees limited threats to China's global dominance to 2020.
India's fertilizer policy: changes aheadAlthough India's Prime Minister, Narendra Modi, and his Bharatiya Janata Party-led government have pledged to reform India's urea subsidy arrangements several times, they appear to be taking a more careful approach towards the necessary changes to India's subsidies policy.
Most of the progress that has been seen is with regard to the ‘Direct Benefit Transfer’ policy for fertilizers, which is a new subsidy-dues settlement system that has been tested via a pilot programme since 4Q16.
The scheme will settle subsidy dues to companies for selling fertilizer at the state-set price within a week – unlike the existing system, where payments to companies often get delayed. Essentially, this is aimed at improving the efficiency of fertilizer distribution and limiting subsidy misuse. The newly-introduced policy is hoped to prevent heavily subsidised fertilizer from being diverted to industrial purposes and smuggled across international borders. If implemented across the country, the change will benefit fertilizer companies, which will see their receivables reduced.
Outlook for urea policy remains uncertainAnother aspect of fertilizer policy reform in which India has made little progress is the price of urea. Urea remains the only fertilizer that is yet to be de-controlled by India's government. Moreover, very low set prices have encouraged farmers to increase the use of nitrogen fertilizer, creating severe imbalances in overall fertilizer consumption, which has adversely affected soil health and long-term yields.
At the time of writing this article, the outlook for the urea subsidy is uncertain. There appears to be some momentum towards a decrease of the subsidy due to concerns over excessive usage, however, although urea reform has long been a hot topic in India, previous governments have shied away from any price hikes, fearing a backlash from farmers. Urea prices will remain low in 2017, which will keep the government's fertilizer bill largely affordable, thus limiting the need to pass controversial reforms.
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