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Life after BPC:What happens now?
Manager, Fertilizer Analysis ProductsPrincipal Consultant, Potash
TFI/FIRT Fertilizer Outlook & Technology Conference,Tampa, November 2013
Photo credit: Uralkali
Agenda
2
Uralkali quits BPC: Causes & consequences
Potash in North America
What next? The outlook for supply & demand
Uralkali Quits BPC“We have seen people...in the fertilizer world do some pretty silly things, but this is probably the single dumbest thing that
I’ve ever seen” – Bill Doyle, CEO of PotashCorp
Quotes: Bloomberg, BMO Capital Markets
“The end of the potash world as we know it”‐‐ Joel Jackson, Equity Research Director at BMO Capital Markets
Billions wiped of potash stocks overnight
4
50
60
70
80
90
100
110
02‐Jan
‐13
16‐Jan
‐13
30‐Jan
‐13
13‐Feb
‐13
27‐Feb
‐13
13‐M
ar‐13
27‐M
ar‐13
10‐Apr‐13
24‐Apr‐13
08‐M
ay‐13
22‐M
ay‐13
05‐Ju
n‐13
19‐Ju
n‐13
03‐Ju
l‐13
17‐Ju
l‐13
31‐Ju
l‐13
14‐Aug
‐13
28‐Aug
‐13
11‐Sep
‐13
25‐Sep
‐13
09‐Oct‐13
23‐Oct‐13
Potash sh
are price inde
x(Jan
uary 1
st= 100)
Data: CRU
$14 billion knocked off POT, MOS, AGU
Why has Uralkali left BPC?
5
Disagreement over volume shares and sales strategyLukashenko overturned exclusivity agreement with
BPC in Dec 2012Allegations from both sides that the other had been
seeking to bypass BPC
Rail deliveriesto China
Other rail deliveries
US sanctions against Belarus since 2009
1.9Mt
1.8Mt
0.8MtOnly half of Uralkali’s sales are handled by BPC...
...Belaruskali asserts in fact only 15‐20% has been going through BPC
What are Uralkali’s objectives?
Win market share
Restore demand growth
Deter investment and limit new
capacity
...put pressure on Belaruskali?
Arrest of CEO not part of the plan......little support from Putin and Kerimov’s future now in doubt.
The market pressures that drove Uralkali to act were already evident
40
50
60
70
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
million tonn
es KCl
KCl deliveries
no net growth
7
DemandUncertainty has paralyzed the market2013 volumes negatively affected, await rebound from 2014...but need price stability to get even buying and achieve expected recovery
SupplyMost projects remain committed...still assessing the outlookCombination of delays/cancellations with improved demand should aid market balance
How has CRU revised its forecasts?
Potash in North America
Data: CRU, IFA, company reports
+5.7 million tonnes‐‐ Increase in Canadian capacity, 2004‐2012
‐1.4 million tonnes‐‐ Decline in Canadian production, 2004‐2012
Capacity additions in North America
9
0
500
1,000
1,500
2,000
2,500
3,000
3,500
2002 2004 2006 2008 2010 2012 2014 2016
De‐bottlenecking & rehabilitation
New shafts & refineries
Time
Capitalcost ($M
)
...have got bigger in scale and higher cost per tonne
Data: CRU, company reports
PotashCorp has been re‐instating capacity
10
0
2
4
6
8
10
12
14
2004 2005 2006 2007 2008 2009 2010 2011 2012
million tonn
es KCl
PCS operational capability
PCS nameplate
Data: CRU, PotashCorp
Mothballed capacity
CRU capacity estimate
P R O D U C T I O N
Export volumes
11Data: GTIS, FAI
0
2
4
6
8
10
2004
2005
2006
2007
2008
2009
2010
2011
2012
million tonn
es KCl
0
2
4
6
8
10
2004
2005
2006
2007
2008
2009
2010
2011
2012
million tonn
es KCl
0
2
4
6
8
10
2004
2005
2006
2007
2008
2009
2010
2011
2012
million tonn
es KCl
US market is mature, but offshore markets haven’t
provided demand growth either
US Crop Acreage
12
40
50
60
70
80
90
100
2008 2009 2010 2011 2012 2013 2014 2015
Million acres h
arvested
Corn Wheat Soyabeans
Corn peak in 2013, then some swing to beansData: USDA
Components of US demand growth
4.3
4.9
‐0.13
+0.67
+0.14
3.6
3.8
4.0
4.2
4.4
4.6
4.8
5.0
5.2
2012consumption
Change incrop area
Change inapplication
rates
Change incrop mix
2018consumption
million tonn
es K
2O
8kg/ha 3.1M ha SoyabeansWheat
Application rates to recover from low in 2012Data: CRU
Shipments to China & India
14
0
100
200
300
400
500
600
700
800
900
1,000
1,100
1,200
Q1 2004
Q2 2004
Q3 2004
Q4 2004
Q1 2005
Q2 2005
Q3 2005
Q4 2005
Q1 2006
Q2 2006
Q3 2006
Q4 2006
Q1 2007
Q2 2007
Q3 2007
Q4 2007
Q1 2008
Q2 2008
Q3 2008
Q4 2008
Q1 2009
Q2 2009
Q3 2009
Q4 2009
Q1 2010
Q2 2010
Q3 2010
Q4 2010
Q1 2011
Q2 2011
Q3 2011
Q4 2011
Q1 2012
Q2 2012
Q3 2012
Q4 2012
Q1 2013
Q2 2013
Q3 2013
thou
sand
tonn
es KCl
Quarterly imports 12‐month rolling average
Data: GTIS
Since 2009, Canadian shipments to China & India have declined
Components of global demand growth
15
30.2
39.5
+1.5
+6.5
+1.2
25
27
29
31
33
35
37
39
41
2012consumption
Change incrop area
Change inapplication
rates
Change incrop mix
2018consumption
million tonn
es K
2O
5kg/ha 77.1M ha Oilseeds Grains
Data: CRU
What next?
Imports into...USA
17
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
million tonn
es KCl
2011 2012 2013
Data: GTIS
Fall application underway...2013 betterthan 2012 but still short of 2011
Deliveries peak Feb‐May, except in 2012
Imports into...Brazil
18
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
million tonn
es KCl
2011 2012 2013
Data: SIACESP via ANDA
Despite some price resistance, Brazil has beenthe most consistent major market
Q4 usually quiet
Imports into...China
19
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
million tonn
es KCl
2011 2012 2013
Data: GTIS
Irregular buying patterns – large storage capacityplus domestic production
Still waiting for contracts
Imports into...India
20
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
million tonn
es KCl
2011 2012 2013
Data: FAI
Subsidy reform has caused erratic buying patterns– 2013 could be lowest imports for a decade
Slow uptake of contracted volumes
Retail pricing in India still a problem
21Data: FAI
0
5
10
15
20
25
30
35
Jan‐09
Mar‐09
May‐09
Jul‐0
9
Sep‐09
Nov
‐09
Jan‐10
Mar‐10
May‐10
Jul‐1
0
Sep‐10
Nov
‐10
Jan‐11
Mar‐11
May‐11
Jul‐1
1
Sep‐11
Nov
‐11
Jan‐12
Mar‐12
May‐12
Jul‐1
2
Sep‐12
Nov
‐12
Jan‐13
Mar‐13
May‐13
Jul‐1
3
Sep‐13
'000
Rs./t
Retail price
Subsidy
Import price
Introduction of NBS – move from floating subsidy/fixed price to fixed subsidy/floating price
Subsidy raised in new budget, but not enough to offset higher contract prices that
arrive 4 months later
Subsidy cut despite Rupee starting to depreciate...
...and again.
Global H1 & H2 deliveries
22
30.6 28.0 30.3
0
10
20
30
40
50
60
H1 2011 H1 2012 H1 2013
million tonn
es KCl 24.7
22.323.2
0
10
20
30
40
50
60
H2 2011 H2 2012 H2 2013 (f)
H1 on a par with 2011, but uncertainty hampering sales in H2
Data: CRU
Global MOP deliveries
23
53‐54Mt in 2013
*CRU’s long‐term guidance is ̴2% per annum
57½‐58½Mt in 2014
Demand outlook is contingent on price level and stability......but there is potential for above‐trend
growth in medium‐term*
India remains a concern...need for subsidy reform after election
Some advanced capacity projects at risk
24
50
55
60
65
70
75
80
85
90
95
2010 2011 2012 2013 2014 2015 2016 2017 2018
million tonn
es KCl
Existing capacity
Committed capacity only. Maximum operating rate 95%.
Committed capacity
Committed but at risk of postponement or cancellation
Data: CRU
What this means for the market balance
25
Risks to both demand and supply are greater on the downside.
60%
65%
70%
75%
80%
85%
50
55
60
65
70
75
80
85
90
95
100
2010 2011 2012 2013 2014 2015 2016 2017 2018
Operating ratemillion tonn
es KCl
Capacity
Despite demand forecast, OR to remain lower than 2011
But latest supply & demand forecasts suggest improving
outlook post‐2014
Deliveries
Data: CRU
Closing remarks
26
The current trend of capacity growth without demand growth isnot sustainable.
These market pressures were (partly) the cause of Uralkali’s actions.
Now a more cautious approach to new capacity, with lengthened timeframes...
...the outlook for the market balance is moderately betterthan 12 months ago.
Demand is suffering in the short‐term because of uncertainty and delayed purchases...
...but should finally return to growth when we have stability.
Thank youfor listening