1
TFI & FIRT Fertilizer Outlook & Technology Conference
Humphrey KnightPotash Analyst, CRU International Ltd, London, UKTFI & FIRT Fertilizer Outlook & Technology ConferenceJacksonville, Florida, USA, November 2018Image credits: Uralkali, TFI, FIRT
Agenda
2
TFI & FIRT Fertilizer Outlook & Technology Conference
• 1 – Recent spot price performance
• 2 – Record 2017 demand
• 3 – Tighter supply
• 4 – Rising industry costs
• 5 – 2018 contracts
• 6 – Potential effects of US-China trade war
• 7 – Future demand
• 8 – Future supply
Image credit: Uralkali
This presentation is private and confidential. It must not be disclosed in whole or in part, directly or indirectly or in any other format without the prior written permission of CRU International Limited.
CRU International Limited’s responsibility is solely to its clients and its liability is limited to the amount of the fees actually paid for professional services.
Although reasonable care and diligence has been used in the preparation of this presentation, we do not guarantee the accuracy of any data, assumptions, forecasts or other forward-looking statements. We accept no liability to third parties, howsoever arising.
CRU takes information security seriously and currently holds the UK Government approved Cyber Essentials certification. This certifies that we have the appropriate security controls across our organisation and third party suppliers to protect our information assets. CRU also has a privacy policy in place which explains how we handle personal data on our customers.
Copyright CRU International Limited 2017. All rights reserved.
Legal noticeTFI & FIRT Fertilizer Outlook & Technology Conference
2018
CRU's reputation with customers across mining, metals and fertilizers is for integrity, reliability, independence and authority.
CRU's insights are built on a twin commitment to quality primary research and robust, transparent methodologies.
CRU invests in a global team of analysts, the key to gaining a real understanding of critical hard-to-reach markets such as China.
We strive to provide customers with the best service and closest contact – flexible, personal, responsive.
CRU – big enough to deliver, a high quality service, small enough to care about all our customers.
CRU’s office locations
About CRUTFI & FIRT Fertilizer Outlook & Technology Conference
200
220
240
260
280
300
320
340
360
380
400
Jan-
2015
Mar
-201
5
May
-201
5
Jul-2
015
Sep-
2015
Nov
-201
5
Jan-
2016
Mar
-201
6
May
-201
6
Jul-2
016
Sep-
2016
Nov
-201
6
Jan-
2017
Mar
-201
7
May
-201
7
Jul-2
017
Sep-
2017
Nov
-201
7
Jan-
2018
Mar
-201
8
May
-201
8
Jul-2
018
Sep-
2018
gMOP CFR Brazil sMOP CFR SE AsiaBrazil and SE Asia import benchmarks continue to recoverUSD/t
•CFR Brazil at its highest since March 2015 •Price rally has continued since start of 2017
CFR SE Asia at its highest since November 2015
18 month price decline finally halted as 2016 contracts established price floor
Recent History: Spot prices at their highest in three years
5
TFI & FIRT Fertilizer Outlook & Technology Conference
Data: Fertilizer Week
40
50
60
70
80
90
100
110Fertilizer MOP
Global affordability tightensIndex, January 2006=100
Drivers a combination of demand and supply factors
6
TFI & FIRT Fertilizer Outlook & Technology Conference
Demand drivers… …led to record 2017 demand
Less favourable
More favourable
•Consistently more favourable MOP affordability since mid-2016
•Area expansion of key MOP-consuming crops:•Soybean & Corn (US & Brazil)•Oil palm (Southeast Asia)
56
58
60
62
64
66
68
2016
Del
iver
ies
N A
mer
ica
C &
S A
mer
ica
Euro
pe &
CIS
Asia
RoW
2017
Del
iver
ies
Wor
ld
2018
Del
iver
ies
Asia and North America strongest performing regionsDeliveries, Mt MOP
US deliveries reached 9.9 Mt with strong H2 “fall application”
Data: CRU
•Chinese demand rebound (affordability)
•SE Asian oil palm area continued to increase
7
TFI & FIRT Fertilizer Outlook & Technology Conference
-20
0
20
40
60
80
100
120
140
-100
0
100
200
300
400
500
600
700
NOLA arrivals Δ FOB Midwest - CFR Brazil
NOLA imports no longer correlate with FOB Midwest price premiumImports, kt MOP FOB Midwest premium, USD/t
2017 deliveries1.9 Mt MOP+44% y/y
OVERSEAS
2017 deliveries7.7 Mt MOP+12% y/y
CANADA
+ Chile, Germany, UK
US Demand: Record 2017
2017 deliveries0.3 Mt MOP-48% y/y
DOMESTIC+13% y/y
0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 2.0
201220132014201520162017
Overseas imports to the US continue to increaseImports, Mt MOP
Price correlation erodes after Q3 2016
Data: CRU; IHS-Markit
8
TFI & FIRT Fertilizer Outlook & Technology Conference
US Demand: Record 2017
0
1
2
3
4
5
6
7
8
9
10
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Range (2010-2016) 2017 2018
US MOP imports surged in 2017, with 2018 on course for a repeatNet imports, Mt MOP
0.04 0.02
4.0
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
5.0
2012 Soybean Corn Fruit &Vegetable
Other 2017
Soybean and corn drive US K2O demand growthDemand, Mt K2O
•Fall application particularly high in 2017
•Soybean and corn driving US demand growth•Application rates higher (K-intensive crops)•Despite declining total cultivated area
Fall application pushed 2017 demand to a record high, with 2018 demand currently following closely
Data: CRU
Soybean area
18%
Corn application
24%
9
TFI & FIRT Fertilizer Outlook & Technology Conference
Supply drivers•Nameplate and effective capacity have diverged since 2013
•Mostly due to Canadian voluntary idling
•Until 2017, lower capacity did not improve price performance
•Canadian producers maintained supply discipline in 2017:
•Utilisation closest to RoW in 10 years
•Prices appear to be responding
Drivers a combination of demand and supply factors
Data: CRU
200
250
300
350
400
450
500
550
600
60%
65%
70%
75%
80%
85%
90%
95%
100%
2010 2011 2012 2013 2014 2015 2016 2017 2018 (f)
Canadian effective utilisation RoW effective utilisation CFR Brazil
Canadian and RoW effective utilisation significantly closer in 2017Effective utilisation MOP CFR Brazil spot, USD/t
Canadian idling takes effect
Canadian and RoWutilisation rates closest since 2007
New capacity: supply slow to start
10
TFI & FIRT Fertilizer Outlook & Technology Conference
Usolsky (2.3 Mt/y) September 2018 start•First export dispatched in September to Southeast Asia
Volgakaliy (4.6 Mt/y) H1 2019 start •Service shaft flooded
Turkmenhimiya Garlyk (1.4 Mt/y) started March 2017
•Reported early problems with production
•Believed to be flooded and not operational
•Almost no recorded exports
K+S Bethune started June 2017•Delayed start-up due to process vessel collapse in late 2016
•Initial problems with product quality
•500 kt produced in 2017
•Production guidance of 1.4-1.5 Mt in 2018
•No US deliveries expected until 2019
K+S Bethune
Data: CRU, K+S; Image credits: CRU, Belta.by
11
TFI & FIRT Fertilizer Outlook & Technology Conference
100
150
20 55504540 65 70 75 80
200
25151050 6030 35
250
Potash Costs: Site costs rising since 2016
Effective capacity, Mt
Site cost, USD/t 12%Canada•Higher energy and labour costs•But capacity increasingly concentrated in lower cost mines
17%Europe•Much higher energy costs•Smaller mines, falling ore grades23%
Russia & Belarus•Rouble recovery vs USD: 67 → 58•Energy & Labour costs ~30%
Data: CRU Potash Cost Service 2018
200
220
240
260
280
300
320
340
360
380
400
Jan-
2015
Mar
-201
5
May
-201
5
Jul-2
015
Sep-
2015
Nov
-201
5
Jan-
2016
Mar
-201
6
May
-201
6
Jul-2
016
Sep-
2016
Nov
-201
6
Jan-
2017
Mar
-201
7
May
-201
7
Jul-2
017
Sep-
2017
Nov
-201
7
Jan-
2018
Mar
-201
8
May
-201
8
Jul-2
018
Sep-
2018
gMOP CFR Brazil spot sMOP CFR SE Asia spot sMOP CFR China contract sMOP CFR India contract
Contract prices raised to reflect regional spot pricesUSD/t
2018 Contracts: China and India – finally – settle at $290/t CFR
12
TFI & FIRT Fertilizer Outlook & Technology Conference
Data: Fertilizer Week
•Chinese and Indian importers both agreed 2018 contracts at USD 290/t CFR
•First time since 2006 contracts agreed at pricing parity
2018 Contracts: Effects of the new agreements
13
TFI & FIRT Fertilizer Outlook & Technology Conference
1,400
1,600
1,800
2,000
2,200
2,400
2,600
Import price Exporterrebate
VAT Handling Import duty Importercost
Importers return positive margins on most sales of imported MOPRMB/t
$ 290/t CFR
50
55
60
65
70
75
02,0004,0006,0008,000
10,00012,00014,00016,00018,00020,000
Apr-1
0Au
g-10
Dec
-10
Apr-1
1Au
g-11
Dec
-11
Apr-1
2Au
g-12
Dec
-12
Apr-1
3Au
g-13
Dec
-13
Apr-1
4Au
g-14
Dec
-14
Apr-1
5Au
g-15
Dec
-15
Apr-1
6Au
g-16
Dec
-16
Apr-1
7Au
g-17
Dec
-17
Apr-1
8Au
g-18
MRP INR/USD
Depreciation of the Indian Rupee pushes MRP to record highMRP, INR/t MOP INR/USD exchange rate
•Profitability returned to exporters
•Closes much of the USD 100/t disparity between Chinese domestic prices and import contract
•But, Chinese importers should still make positive margins on most sales of imported MOP
•Subsidy cut and INR depreciation pressuring market•MRP at INR 19,000/t MOP •+50% since January and a record high
•Near-term demand stable, stocks to be replenished
•But, decreased inland purchasing likely
China India
TFI & FIRT Fertilizer Outlook & Technology Conference
Data: CRU; Bloomberg
Chinese FCA port wholesale (October range)
Future demand: US-China trade war’s effect on fertilizer demand
14
TFI & FIRT Fertilizer Outlook & Technology Conference
-20
0
20
40
60
80
100
200
250
300
350
400
450
500
Jan-
17
Feb-
17M
ar-1
7
Apr-1
7M
ay-1
7
Jun-
17Ju
l-17
Aug-
17
Sep-
17O
ct-1
7
Nov
-17
Dec
-17
Jan-
18
Feb-
18M
ar-1
8
Apr-1
8M
ay-1
8
Jun-
18Ju
l-18
Aug-
18
Sep-
18O
ct-1
8
Δ Brazil - US Gulf Soybean FOB US Gulf Soybean FOB Brazil
Premium for Brazilian soybeans FOB Soybean, USD/t Δ Brazil – US Gulf, USD/t
0
10
20
30
40
50
60
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Range (2013-2017) 2018
2018 US soybean exports to China low, but not unusually so…yetCumulative US soybean exports to China, Mt
0
10
20
30
40
50
60
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Range (2013-2017) 2018
…But 2018 Brazilian soybean exports to China rising sharply Cumulative Brazilian soybean exports to China, Mt
90 110 130 150 170 190
Corn Soybean Other
Brazilian soybean area to surgeHarvested area index, 2017=100
•Brazilian soybean prices now at a premium of ~USD 80/t over US Gulf•Historically, the premium has rarely exceeded USD 20/t
•Chinese imports of US soybeans towards the low-end of the range of the previous five years:
•Q4 will reveal the full extent of the decline
•2018 Brazilian imports into China have soared to record levelsData: CRU; IHS-Markit
Future demand: US-China trade war’s effect on potash demand
15
TFI & FIRT Fertilizer Outlook & Technology Conference
0102030405060708090
Corn Soybean
USA Brazil
K2O application rates highest on corn in USApplication, kg/ha
85
90
95
100
105
110
115
2017 2018 2019 2020 2021 2022 2023
Other CornSoybean Corn (scenario)Soybean (scenario)
Strong corn area growth, soybean mutedHarvested area index, 2017=100
4.5
4.6
4.7
4.8
4.9
5.0
2017 2018 2019 2020 2021 2022 2023
Scenario Base case
Increased corn planting a positive for K2OUS K2O consumption, Mt K2O
•Lower soybean area provides potential upside for MOP demand
•Opposite K2O application on corn and soybeans in Brazil and US:
•Corn significantly more potash-intensive in USA
•Soybean more potash-intensive in Brazil
•US base-case (short trade war):•Soybean area to fall to 2020 before recovering
•Corn area to increase to 2021 before flattening
•Scenario (prolonged trade war):•Corn area to rise and soybean area to fall to 2023
•Scenario (prolonged trade war):•Increasing corn area provides upside for K2O demand
•MOP would fulfil much of this additional requirement
•Around 100 – 150 kt MOP extra required by 2023
Data: CRU
CAGR(‘17-’23)
+1.8%
-2.0%
+0.5%
-0.6%+100 – 150 kt MOP
Future demand: Global growth to continue despite flat US consumption
16
TFI & FIRT Fertilizer Outlook & Technology Conference
66.8
76.8
2.0
2.91.3
1.0
1.80.9
58
60
62
64
66
68
70
72
74
76
78
2018 Deliveries Asia Central &South America
Europe & CIS Africa Oceania North America 2023 Deliveries
Components of medium-term demand growthDeliveries, Mt MOP
SE Asia
China
Other
•Asia & Latin America to drive MOP demand
•In Asia:•Southeast Asian oil palm area (Malaysia + Indonesia) to continue to expand
•China projected continue to enlarge fruit and vegetable area & raise application rates
6080100120140160180
20253035404550
Fruit & Vegetable area K2O application
Fruit & vegetable demand driving Chinese MOP consumption growth Harvested area, Mha K2O application rate, kg/ha
K2O
Data: CRU
Future Demand: Chinese growth to persist as domestic capacity reaches limit
17
TFI & FIRT Fertilizer Outlook & Technology Conference
0
50
100
150
200
250
300
350N P2O5 K2O
Chinese application rates continue to riseNutrient demand index, 2000=100
P2O5 K2O
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
02468
101214161820
Domestic sales Imports
Domestic production share of demand to fallDeliveries, Mt MOP Proportion of total demand
0
2
4
6
8
10
12
14
16
18MOP Primary SOP Secondary SOP
Domestic capacity growth to stagnateCapacity, Mt/y
•K2O application rates to continue to rise further
•Increased fruit & veg area, greater focus on crop quality
•Fewer environmental concerns
•Domestic capacity appears to have reached a limit
•CRU is no longer aware of any further investment in new or expanded MOP capacity
•MOP imports will be required to satisfy increased K2O demand
•Increased domestic production remains possible
•Some MOP producers switching to other products
Data: CRU
Capacity growth flat after 2018
18
TFI & FIRT Fertilizer Outlook & Technology Conference
Future Supply: Plenty still to arrive
Data: CRU
0
5
10
15
20
25
30
35
40
45
50
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Major nameplate capacity additions (2008-2023)Net addition, Mt/y MOP
5.113.8
-2.6
10.2
-4-202468
10121416
Brownfield Greenfield Closures Demand
Cumulative change (2017-2023)Mt MOP
2018EuroChem - Volgakaliy (4.6 Mt)EuroChem - Usolsky (2.3 Mt)
2020Belaruskali - Petrikov (1.5 Mt)
2022Slavkali - Lyuban (1.8 Mt)
2023BHP – Jansen (4.0 Mt)
2017/18Mosaic - Esterhazy K3 (1.0 Mt)
2020Uralkali – Solikamsk-2 (1.2 Mt)
Future Supply: Potential market balance effects
19
TFI & FIRT Fertilizer Outlook & Technology Conference
•Despite continued demand growth, operating rates unlikely to increase significantly over the next five years
•New capacity > New demand
•Utilisation ~70-75%
•Smaller, higher cost production facilities likely to come under cost pressure once again
•Producers with product flexibility may increasingly move away from MOP•Other forms of potash (SOP, SOPM, NOP) + other products
•Decreased MOP production or increased internal consumption
•Some more marginal producers may limit long-haul exports •Maximising netbacks in proximal markets
20
TFI & FIRT Fertilizer Outlook & Technology Conference
Thank you Image credit: Uralkali
CRU’s Potash TeamHumphrey KnightPotash [email protected]
Logan CollinsPotash Markets Editor – Fertilizer [email protected]
Rajiv RamSenior Analyst, Fertilizer [email protected]
Gavin JuPrincipal Analyst, Nitrogen & Potash – Beijing [email protected]
Alexander DerricottSenior Analyst, Fertilizer Costs [email protected]