fluid fertilizer foundation · 2016-12-23 · sugarcane others robust brazilian farm prices support...
TRANSCRIPT
PotashCorp.com
Fluid Fertilizer Foundation
Market Update
6 Dec. 2016
Chris Reynolds
VP, Fertilizer Sales
This presentation contains forward-looking statements or “forward-looking information” (“forward-looking statements”). These statements
can be identified by expressions of belief, expectation or intention, as well as those statements that are not historical fact. These
statements often contain words such as “should,” “could,” “expect,” “may,” “anticipate,” “believe,” “intend,” “estimates,” “plans” and similar
expressions. These statements are based on certain factors and assumptions as set forth in this document, including with respect to:
foreign exchange rates, expected growth, results of operations, performance, business prospects and opportunities, and effective tax rates.
While the company considers these factors and assumptions to be reasonable based on information currently available, they may prove to
be incorrect. Forward-looking statements are subject to risks and uncertainties that are difficult to predict. The results or events set forth in
forward-looking statements may differ materially from actual results or events. Several factors could cause actual results or events to differ
materially from those expressed in forward-looking statements including, but not limited to, unexpected developments with respect to any
of the following: variations from our assumptions with respect to foreign exchange rates, expected growth, results of operations,
performance, business prospects and opportunities, and effective tax rates; fluctuations in supply and demand in the fertilizer, sulfur and
petrochemical markets; changes in competitive pressures, including pricing pressures; risks and uncertainties related to any operating and
workforce changes made in response to our industry and the markets we serve, including mine and inventory shutdowns; adverse or
uncertain economic conditions and changes in credit and financial markets; economic and political uncertainty around the world; changes
in capital markets; the results of sales contract negotiations; unexpected or adverse weather conditions; changes in currency and
exchange rates; risks related to reputational loss; the occurrence of a major safety incident; inadequate insurance coverage for a significant
liability; inability to obtain relevant permits for our operations; catastrophic events or malicious acts, including terrorism; certain
complications that may arise in our mining process, including water inflows; risks and uncertainties related to our international operations
and assets; our ownership of non-controlling equity interests in other companies; our prospects to reinvest capital in strategic opportunities
and acquisitions; risks associated with natural gas and other hedging activities; security risks related to our information technology
systems; imprecision in reserve estimates; costs and availability of transportation and distribution for our raw materials and products,
including railcars and ocean freight; changes in, and the effects of, government policies and regulations; earnings and the decisions of
taxing authorities which could affect our effective tax rates; increases in the price or reduced availability of the raw materials that we use;
our ability to attract, develop, engage and retain skilled employees; strikes or other forms of work stoppage or slowdowns; rates of return
on, and the risks associated with, our investments and capital expenditures; timing and impact of capital expenditures; the impact of further
innovation; adverse developments in new and pending legal proceedings or government investigations; and violations of our governance
and compliance policies. These risks and uncertainties, as well as additional risks and uncertainties, are discussed in more detail under
the headings “Forward-Looking Statements,” “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015 and in our other filings with the US
Securities Exchange Commission and Canadian provincial securities commissions. Forward-looking statements included in this
presentation are given only as at the date hereof and PotashCorp disclaims any obligation to update or revise any forward-looking
statements in this presentation, whether as a result of new information, future events or otherwise, except as required by law.
Forward-looking Statements
Agriculture Fundamentals
Highlights
• Record global grain/oilseed consumption
maintains incentive to increase crop
production
• US exports for major crops are at all-time
highs, helping offset record production in
2016
• US corn acreage for 2017 season expected
at 91M+ acres, Soybeans 83M+ acres
• South American planting progressing well;
moisture conditions good in Mato Grosso
with alleviating dry conditions in Southern
growing regions
• Palm oil and Sugar markets supported by
strong demand and tight supply availability
Prices Remain at Supportive Levels Due to Strong Demand
Crop Price Update
Source: CapIQ
Selected Crop Prices*
$3.75$3.40
$3.80
Corn (US$/bu)
2017 Forecast Current 3-Year Average
$9.65$10.50 $10.32
Soybean (US$/bu)
$0.15
$0.20$0.18
Sugar (US$/lbs)
$2,385
$3,050$2,900
Palm Oil (MYR/mt)
Nov ’17 Dec ’17
Oct ’17 Nov ’17
* As at November 30, 2016
Source: USDA
Large Stocks Allow for Strong Demand Growth
US Corn and Soybean Profile
2016/17 US Corn Profile Billion Bushels
2.4
15.2
1.7
Ending
Stocks
Exports
-2.2
Ethanol
-5.3
Food, Feed
& Seed
-7.1
Imports
0.1
Production* Beginning
Stocks
2016/17 US Soybean Profile Billion Bushels
0.5
4.4
0.2
Exports Ending
Stocks
Crush & Seed
-2.1
Imports
0.0
Production Beginning
Stocks
-2.1
Stocks-to-use = 16%
Stocks-to-use = 12%
Farmer Returns Remain Supportive; Forward Budgets to Surpass Prior Year
US and Brazil Crop Returns
Source: USDA, IMEA, Conab, PotashCorp
* 2016F represents the 2016/17 Brazilian crop year.
US Corn Return over Operating and Land Costs (US$/acre)
Brazil Soybean Return over Operating and Land Costs (Reals/acre)
10182
125118
195
349
458
381
163
221
308
162
18
60
91
67
23
2002
2001
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016E
2017F
335
102
180
549
403
306
423
135
262
505
268
90
164
486
516
276
242
2014
2016F
2003
2004
2005
2006
2007
2008
2009
2010
2012
2011
2015
2013
2000
2002
2001
US Fertilizer Cost and Soil K Needs
Source: USDA, PotashCorp
Strong Value in Fertilizer As Soils Continue to Test Below Critical Potassium Levels
10
12
14
16
18
20
22
24
26
1976
1981
1986
1991
1996
2001
2006
2011
2016F
30-year average
0
20
40
60
80
100
Fertilizer Cost as Percentage of Corn Revenue Percent
North American Potassium Soil Test Levels Percentage of Soils Testing Below Critical Level for K, 2015
0
20
40
60
80
100
120
140
160
180
200
2000 2002 2004 2006 2008 2010 2012 2014 2016F
Soybeans Corn 1st Corn 2nd
Sugarcane Others
Robust Brazilian Farm Prices Support Strong Planting Outlook
Brazil’s Crop Prices and Planting Area
* 2016F represents the 2016/17 Brazilian crop year.
0
5
10
15
20
25
30
35
40
45
Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16
Corn (R$/Bu)
Soybeans (R$/Bu)
Source: USDA, IMEA, Conab, PotashCorp
Brazil Crop Prices (Mato Grasso) Real / Bushel
Brazil Planted Area by Crop Million Acres
Fertilizer Market Fundamentals
K
100
200
300
400
500
600
700
Jan-17 Jul-16 Jan-16 Jul-15 Jan-15 Jul-14 Jan-14
200
250
300
350
400
450
500
Jan-17 Jul-16 Jan-16 Jul-15 Jan-15 Jul-14 Jan-14
Source: Fertilizer Week
Selected Fertilizer Prices (US$)
Potash Prices Move Up; Phosphates Stabilize
World Fertilizer Prices
• Strong demand and tight supply lift prices in
most spot markets
• New business in most markets being
conducted at ~$30/mt higher than end of Q2’16
N
P
Key Highlights
• Tampa ammonia prices recently strengthened
having found near-term support
• Urea prices rally on limited supply from China
• Solid fertilizer market stable to lower on weak
demand and lower input costs
• Phos Acid markets move lower on weak
Indian demand
KCl - CFR Brazil ($/mt)
KCl - FOB US Midwest ($/st)
UAN - FOB NOLA ($/st)
Urea - FOB Midwest ($/st)
Ammonia - FOB Tampa($/mt)
0
200
400
600
800
1,000
1,200
Jan-17 Jan-16 Jul-16 Jul-15 Jan-15 Jul-14 Jan-14
Phos Acid (100%) - CFR India ($/mt)
DAP - FOB Central Florida ($/st)
Potash Shipments by Region
Source: Fertecon, CRU, Industry Publications, PotashCorp
Expect Demand of 61-64 Million Tonnes in 2017
0
5
10
15
20
14 15 16F 17F 14 15 16F 17F 14 15 16F 17F 14 15 16F 17F 14 15 16F 17F
India
Note: Shaded bars represent shipment forecast range.
4.2 – 4.7mmt
• Lower farm retail
prices (due to support
MRP and subsidy
changes) expected to
support consumption
growth
Other Asia
8.8 – 9.3mmt
• Supportive crop
economics and the
absence of lengthy
contract deferrals are
expected to support
normalized demand
North America
9.3 – 9.8mmt
• Significant removal of
nutrients following
record crop along with
attractive potash price
likely to support
strong demand
Latin America
11.5 – 12.0mmt
• Agronomic need and
increased crop
acreage expected to
support demand
growth
China
14.5 – 15.5mmt
• Lower inventories,
more timely contract
settlements, and
strong consumption
trends expected to
support shipments
2017
Hig
hlig
hts
Global Potash Shipment Estimate by Market (Million Tonnes KCl)
Previous Record:
6.3mmt (2010)
Previous Record:
9.5mmt (2014)
Previous Record:
11.1mmt (1997)
Previous Record:
11.7mmt (2014)
Previous Record:
15.8mmt (2015)
World Potash Inventory Changes
Inventory Has Been Drawn Down at Both Producer and Distribution Level
Source: CRU TFI, Company Reports, PotashCorp
Estimated Inventory Change Million Tonnes (KCl)
-4.0
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
2010 2014 2015 2016F 2012 2011 2013
Estimated Distributor Inventory Change (Shipments less Consumption)
Estimated Producer Inventory Change (Production less Sales)
Source: Fertecon, CRU, PotashCorp
Potash Shipments Historical Trends
Late Chinese Contract Settlement Has Historically Created a Rebound in Demand
0
20
40
60
80
+5%
+87% +15%
2017F 2016F 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003
Denotes years when China has had early potash contract settlements
Ju
ly
2006
No
Co
ntr
act
Denotes years when China has had late (post April) potash contract settlements
Note: 2016F & 2017F based on midpoint of shipment forecast range; all dates reflect timing of Canpotex settlement, with the
exception of 2016, which indicates first announced producer settlement
Ju
ly 2
016
Global Potash Shipment Estimates (Million Tonnes KCl)
Potash Mine Closures (Nameplate Capacity) Million Tonnes KCl
Source: Fertecon, CRU, Company Reports, PotashCorp
Approximately 7 Million Tonnes of Capacity Expected to Be Closed by 2020*
Announced Potash Mine Closures (2016-2020)
0.0
0.5
1.0
1.5
2.0
2.5
3.0
URKA(Berezniki 2)***
POT(NB)
ICL (UK)
Vale(Brazil)
K+S(Germany)
IPI(West)
IPI(East)
Ore Depletion
Product Conversion**
Indefinite Suspension
* Based on changes disclosed in company reports and CRU estimates
** Conversion of KCl mines to specialty multi-nutrient products
*** Represents total mine capacity. Capacity depletion to begin in 2019 as per company reports
Source: Fertecon, CRU
Historically Low Operating Rates Due to Diminishing Profits
China’s Nutrient Profile
0
10
20
30
40
50
60
70
80
2010 2012 2014 2016F
Exports Domestic Sales
~52%
0
5
10
15
20
25
30
35
2010 2012 2014 2016F
Exports Domestic Sales
Nitrogen (Urea) Million Tonnes
Phosphate (DAP/MAP) Million Tonnes
Potash (KCl) Million Tonnes
Current
Operating
Rate*: ~60% ~89%
0
1
2
3
4
5
6
7
8
2010 2012 2014 2016F
Domestic Production
* Based on industry consultants’ estimates.
Ammonia Supply Overview
Global Ammonia Supply** (Million Tonnes)
Source: CRU, Fertecon, Company Reports, PotashCorp
3.4
2.0
1.5
Middle East
Projects
Other Asia
Projects
US
Projects 2016E
Capacity
220.4
0.6 0.2
Russia
Projects
0.8
***China
Projects
228.9
Other
Projects
8.5Mmt
2017F
Capacity
* Does not include smaller debottleneck projects
** Capacity is prorated for startup timing in the year
*** Net of additions and closures
~8.5MMT of new supply in 2017 with 40% in US
US Nitrogen Import Profile
Source: USDOC, PotashCorp
Ammonia (US) (Million Tonnes)
Ammonia
4.6
5.25.0
6.0
2014 2016F 2015 2013
Change in Imports:
-12%
Urea (US) (Million Tonnes)
Ammonia
6.5
7.27.5
6.5
Change in Imports:
-9%
2016F 2015 2014 2013
UAN (US) (Million Tonnes)
Ammonia
2.8
3.13.13.2
Change in Imports:
-10%
2016F 2015 2014 2013
Increased US Production to Reduce Dependency of Offshore Imports
Chinese Urea and UAN Exports
Source: CRU, Fertecon, PotashCorp
Ammonia
Urea (China) (Million Tonnes)
Ammonia
9.0
13.813.6
8.3
2013 2016F
10.0
2015 2014
UAN (China) (Thousand Tonnes)
Ammonia
420441
223
2016F 2015 2014 2013
Coal Cost Increase and Nitrogen Price Decrease Pressuring Exports
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
2011 2012 2013 2014 2015 2016F 2017F 2018F 2019F 2020F
Morocco China Saudi Arabia Jordan Brazil Others Closures
Majority of New Capacity Being Developed in Saudi Arabia and Morocco
Global Phosphoric Acid Capacity Additions
Source: CRU, IFA, PotashCorp
Global Capacity Additions (Million Tonnes P2O5)
10 5 0
600
500
400
300
200
100
0
25 20 15
Exports - Million Tonnes (2016F)
$320/mt
Source: Profercy, PotashCorp
TAMPA
DAP Spot ($/MT FOB)
Nov 2016
2016E DAP/MAP Exporter Cash Cost Curve
$US/Tonne FOB Port
Export Cost
Cost Range
Russia Other
Middle
East Africa US China
DAP/MAP Exporter Cash Cost Curve
Current DAP Prices Appear to be At (or Below) Marginal Exporter Levels
China’s DAP Exports and India’s DAP Imports
Source: CRU, Fertecon, PotashCorp
Ammonia
DAP/MAP Exports (China) (Million Tonnes)
Ammonia
7.2
4.54.5
10.8
4.94.9
2016F
8.0
2015 2014 2011 2012 2013 2010
DAP Imports (India) (Million Tonnes)
Ammonia
5.8
3.63.5
6.26.4
7.6
2015 2014 2010
4.5
2013 2011 2012 2016F
China’s Trade Increasingly Dependent on Market in India
MAP Imports Million Tonnes
DAP Imports Million Tonnes
Source: USDOC, Piers, PotashCorp
0.0
0.2
0.4
0.6
0.8
1.0
1.2Russia Morocco China
Lithuania Mexico Others
Offshore Imports Remain Relatively Stable
US DAP/MAP Fertilizer Year Import Profile
0.0
0.2
0.4
0.6
0.8
1.0
1.2 Russia Morocco China
Mexico Canada Others
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