TFI & FIRT Fertilizer Outlook & Technology Conference Chloride... · 1 TFI & FIRT Fertilizer Outlook & Technology Conference Humphrey Knight. Potash Analyst, CRU International Ltd,

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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

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• 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

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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.

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About CRUTFI & FIRT Fertilizer Outlook & Technology Conference

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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

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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

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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)

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68

2016

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N A

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C &

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Euro

pe &

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Asia

RoW

2017

Del

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Wor

ld

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Del

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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

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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

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US Demand: Record 2017

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2

3

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6

7

8

9

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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%

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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

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60%

65%

70%

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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

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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

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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

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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

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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

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1,400

1,600

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Import price Exporterrebate

VAT Handling Import duty Importercost

Importers return positive margins on most sales of imported MOPRMB/t

$ 290/t CFR

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02,0004,0006,0008,000

10,00012,00014,00016,00018,00020,000

Apr-1

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g-11

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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


Data: CRU; Bloomberg

Chinese FCA port wholesale (October range)

Future demand: US-China trade war’s effect on fertilizer demand

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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

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Range (2013-2017) 2018

2018 US soybean exports to China low, but not unusually so…yetCumulative US soybean exports to China, Mt

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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

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0102030405060708090

Corn Soybean

USA Brazil

K2O application rates highest on corn in USApplication, kg/ha

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2017 2018 2019 2020 2021 2022 2023

Other CornSoybean Corn (scenario)Soybean (scenario)

Strong corn area growth, soybean mutedHarvested area index, 2017=100

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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

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66.8

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2.0

2.91.3

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1.80.9

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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

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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

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350N P2O5 K2O

Chinese application rates continue to riseNutrient demand index, 2000=100

P2O5 K2O

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02468

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Domestic sales Imports

Domestic production share of demand to fallDeliveries, Mt MOP Proportion of total demand

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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

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Future Supply: Plenty still to arrive

Data: CRU

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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

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•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

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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]

mailto:[email protected]





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TFI & FIRT Fertilizer Outlook & Technology Conference Chloride... · 1 TFI & FIRT Fertilizer Outlook & Technology Conference Humphrey Knight. Potash Analyst, CRU International Ltd,