nitrogen market update - firt outlook.pdfsource: usda, world commodity analysis corporation, ......
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PotashCorp.com
Nitrogen Market Update Arvin Pirness Manager, Market Research TFI Outlook Conference November 14, 2012
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 are based on certain factors and assumptions 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. Several factors could cause actual results to differ materially from those expressed in the forward-looking statements, including, but not limited to: 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, transportation and petrochemical markets; costs and availability of transportation and distribution for our raw materials and products, including railcars and ocean freight; changes in competitive pressures, including pricing pressures; adverse or uncertain economic conditions and changes in credit and financial markets; the results of sales contract negotiations with major markets; economic and political uncertainty around the world, including the European sovereign debt crisis; timing and impact of capital expenditures; risks associated with natural gas and other hedging activities; changes in capital markets and corresponding effects on the company’s investments; unexpected or adverse weather conditions; changes in currency and exchange rates; unexpected geological or environmental conditions, including water inflows; imprecision in reserve estimates; adverse developments in new and pending legal proceedings or government investigations; acquisitions we may undertake; strikes or other forms of work stoppage or slowdowns; changes in, and the effects of, government policies and regulations; security risks related to our information technology systems; and earnings, exchange rates and the decisions of taxing authorities, all of which could affect our effective tax rates. Additional risks and uncertainties can be found in our Form 10-K for the fiscal year ended December 31, 2011 under the captions “Forward-Looking Statements” and “Item 1A – Risk Factors” and in our other filings with the US Securities and Exchange Commission and the Canadian provincial securities commissions. Forward-looking statements are given only as at the date of this presentation and the company disclaims any obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
Forward-looking Statements
• Brief Agriculture Overview & US Nitrogen Demand Outlook
• Review of Current and Forecasted Costs For Key Global Producers
• Capacity and Trade Outlook
Presentation Outline
Agriculture Overview & US N Demand Outlook
Source: USDA, World Commodity Analysis Corporation, Doane, Brilliant Pioneer Consultants, PotashCorp
Less Than Ideal Conditions Have Impacted 2012 Crop Production
Global Crop Condition
Projected corn yield is the lowest since 1995. Significant demand rationing required for
corn and soybeans.
Expect limited FSU grain exports over next 6-9 months; Russian
wheat exports could be down by 60% in 2012/13
Brazilian soybean acres expected to increase by 8-10%. Market will be
closely monitoring weather conditions.
Weak Indian monsoon impacted Kharif (summer) crop, improved rain should support
Rabi (fall) crops
Key Factors to Watch: • How will US corn and soybean demand be rationed • Uncertainty of FSU grain export supply • Planted area and crop conditions in Brazil • China corn and soybean import demand
Yields have generally disappointed due to heat and
disease pressure
Australian wheat production could be down by more than 20%
Argentina expected to increase soybean acreage but excess moisture has delayed
planting
0
5
10
15
20
25
30Historical 25-Year Average
Source: USDA, PotashCorp
2012F refers to the 2012/13 crop year. Assumes demand growth of 2 percent. Previous 10-year growth in production/consumption averaged approximately 2 percent annually.
Percent
Consecutive Years of High Growth in Production Required to Replenish Stocks
World Grain Stocks-to-Use Ratio
Annual Production Growth Rate Scenarios
6% (~3X Historical Rate)
4% (~ 2X Historical Rate)
2% (~ Historical Rate)
Source: USDA, AAPFCO
-40%
-30%
-20%
-10%
0%
10%
20%
30%
1970 1974 1980 1983 1988 1993 1995 2012F
Change in US Fertilizer use (in following fertilizer year)Change in US N Fertilizer use (in following fertilizer year)Year-over-Year Corn Yield Decline
Percentage Change
Fertilizer Use Increased in Most Fertilizer Years Following a Major Yield Decline
US Fertilizer Use Following Major Yield Declines
?
80
90
100
110
120
130
140
150
160
170Corn Ammonia Urea UAN 28
Source: DTN, Bloomberg
Price Index (January 2011 = 100)
Nitrogen Prices are Lagging Increases in Crop Prices
US Crop and Retail Fertilizer Prices
Source: DTN, USDA, Bloomberg, PotashCorp
0
5
10
15
20
25
Percent
Expect Farmers Will Respond to Favorable Fertilizer Economics
Fertilizer Cost Percentage of US Corn Revenue
10-year average
0
20
40
60
80
100
120
140
160
180
2007 2008 2009 2010 2011 2012 2013F
Corn Wheat Cotton
Source: USDA, IFA, Doane
* Based on corn, wheat and cotton acreage. 2013F refers to the 2013/14 crop year.
Million Acres
US Major Crop Acreage*
47%
13%
6%
4%
2%
28%
US N Use by Crop, Percentage
Expect Another Large Planted Acreage of Major Nitrogen Consuming Crops
US N Use by Crop and Acreage Forecast*
Corn
Wheat
Other Cereals
Fruits & Vegetables
Cotton
Other
0
2
4
6
8
10
12
14
16
18
205-year Average (2008-2012)
Source: USDOC, TFI, CRU
Million Tonnes
US Nitrogen Demand Expected to Be Strong in 2013
US Nitrogen Consumption
Ammonia Urea Nitrogen Solutions
Nitrogen Costs Update
Source: Fertecon, CRU, PotashCorp
$13.90
$10.50
$9.35
$6.50
$6.05
$3.40
$2.75
$1.10
$0.80
0 2 4 6 8 10 12 14
W. Europe (Contract)
Ukraine (Port)
W. Europe (Spot)
China
Trinidad
Russia
US Gulf
Middle East
North Africa
US$/MMBtu – 2012F
Gas Prices Remain Elevated In Required Producing Regions
Natural Gas Prices in Key Nitrogen-Producing Regions
Source: Fertecon, CRU, PotashCorp
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
16.00
2006 2008 2010 2012F 2014F 2016F
US$/MMBtu
Input Costs Expected To Remain High In Many Key Producing Regions
Natural Gas Forecast For Key Producing Regions
W. Europe (Contract)
US Gulf
Ukraine (Port)
Russia
W. Europe (Spot)
0
100
200
300
400
MiddleEast
US Russia China(Coal)
Ukraine(Port)
Gas Cost Coal CostOther Cash Cost Freight & Handling
0
100
200
300
400
500
600Gas Cost Other Cash CostFreight & Handling
Source: Fertecon, CRU, PotashCorp
Note: Cost of production estimates based on natural gas price forecast for 2012
US$/Tonne
Urea
US$/Tonne
Ammonia
High-Cost Production Required During Periods of Strong Demand
Nitrogen Production Cash Costs
0
100
200
300
400
500
600
0 5 10 15 20
Ukraine
Canada Russia
Spot
Contract
M. East
Europe
North Africa
Trinidad
0
50
100
150
200
250
300
350
400
0 10 20 30 40
China
Ukraine
Canada Russia
Steam Coal
Anthracite
M. East
Europe
Egypt
Latin America
Indonesia/Malaysia
Source: Fertecon, CRU, PotashCorp
Note: Cost of production estimates based on natural gas and coal price forecast for 2012. Excludes transportation cost.
US$/Tonne
Urea Cash Costs
US$/Tonne
Ammonia Cash Costs
Wide Range In Cost Profiles Intensifies Typical Market Seasonality
Supply Cost Curves for Nitrogen Exporters
Million Tonnes Export Million Tonnes Export
Capacity & Trade
20%
30%
40%
50%
60%
70%
80%
90%
100%
0
50
100
150
200
250
2002 2004 2006 2008 2010 2012F 2014F 2016F
Operational Capability* - World World Consumption
Estimated Operating Rate -Excl. China
Source: Fertecon, PotashCorp
*Estimated annual achievable production level from existing operations and projected new capacity. **Operating rate forecast based on forecasted demand divided by estimated operational capability (including announced projects; assuming typical ramp-up period for new capacity).
Operating Rate** Product - Million Tonnes
Relatively Balanced Ammonia Market Outside of China
World Ammonia Supply and Demand
Source: Fertecon, CRU, PotashCorp
Global Ammonia Trade 2011: 19.6 Million Tonnes
24%
24%
18%
7%
8%
9%
11%
Export Profile
35%
20%
26%
5%
14%
Import Profile
Expect Majority of Import Growth From Asian Markets
World Ammonia Trade
US
Western Europe
Asia
Africa
Other Trinidad
FSU Middle
East
Africa
Asia
Europe
Others
0
1
2
3
4
5
6
7
8
2012F 2013F 2014F 2015F 2016F
Russia Qatar Saudi Arabia Algeria Egypt Brazil Venezuela Other
Kyrgyzstan
Source: CRU, Fertecon, PotashCorp
*Excludes Chinese urea capacity additions and capacity curtailments
*Approximately 80 percent of the new capacity is export oriented † Indicates the country is a net importer
Capacity - Million Tonnes Urea
Uncertainty Over Timing and Probability of Announced New Capacity
Global Urea Capacity Additions*
Turkmenistan Gabon Malaysia
Indonesia
Argentina Bangladesh †
Kazakhstan
Azerbaijan
UAE
India†
Vietnam †
Venezuela
US
Indonesia
20%
30%
40%
50%
60%
70%
80%
90%
100%
0
25
50
75
100
125
150
175
200
225
2002 2004 2006 2008 2010 2012F 2014F 2016F
Operational Capability* - World Consumption - WorldEstimated Operating Rate - Excl. China
Source: Fertecon, PotashCorp
*Estimated annual achievable production level from existing operations and projected new capacity. **Operating rate forecast based on forecasted demand divided by estimated operational capability (including announced projects; assuming typical ramp-up period for new capacity).
Operating Rate** Product - Million Tonnes
Modest Pressure On Market Possible If Proposed Project Are Completed
World Urea Supply and Demand
170
175
180
185
190
195
200
205
210
215
2009 2010 2011 2012F
Projected Capacity 1-Year Prior Actual Capacity
Source: Fertecon, CRU, PotashCorp
Capacity - Million Tonnes
Numerous Global Urea Project Delays Have Impacted the Market
Nitrogen Capacity Projections vs. Actual Additions
Source: Fertecon, CRU, PotashCorp
Global Urea Trade 2011: 40.6 Million Tonnes
24%
8%
36%
10%
23%
Export Profile
14%
18%
19% 18%
11%
19%
Import Profile
The Middle East and Africa are Forecast to Supply Import Growth
World Urea Trade
US
Latin America
India Other Asia
Other
Europe
FSU
Africa
Middle East
China
Other
US Capacity Story
Source: NYMEX Henry Hub, Fertecon, PotashCorp
0
5
10
15
20
25
30
Jan-97 Jan-00 Jan-03 Jan-06 Jan-09 Jan-12
US Ammonia US Gas
US$/mmBtu equivalent
US Natural Gas Situation Provides Significant Interest In Nitrogen Production
Ammonia Cost and Natural Gas Price Comparison
Source: CRU, Fertecon, Blue Johnson & Associates, Public Filings, PotashCorp
Proposed Capacity Additions in North America Ammonia UreaST/Year ST/Year
LSB Pryor, OK 60,000 - 4Q12OCI Beaumont, TX 250,000 - 2Q12 PCS Augusta, GA 70,000 - Q412PCS Geismar, LA 550,000 - 1Q13
Austin Powder Moshein, TN 125,000 - 2H13 CF-Brownfield Donaldsonville, LA 100,000 - 3Q13
Rentech East Dubuque, IL 75,000 17,500 4Q13
Yara Belle Plaine, SK 880,000 1,450,000 1H2016
Donaldsonville, LA 2H2015 and 2016
Port Neal, IA2016
Agrium - Brownfield TX, AB 135,000 890,000OCI Iowa 880,000 510,000 3Q15
CHS Spiritwood, ND 750,000 1,020,000 2H16Subtotal 5,975,000 6,287,500
Agrium - Greenfield US 1,000,000 1,980,000Koch numerous 1,800,000 500,000
Dyno Nobel Waggaman, LA 850,000 - Summit Texas 406,000 700,000
Mosaic Faustina, LA 1,100,000IFFCO East Canada (on
water)1,700,000 2,600,000
ND Corn Growers North Dakota 800,000 1,400,000OVR Indiana 822,000 688,000
Agrifos Pasadena, Texas TBD TBD TBDSubtotal 8,478,000 7,868,000
Total 14,453,000 14,155,500
Company Location Start up
CF-Brownfield 2,100,000 2,400,000
Numerous Nitrogen Capacity Announcements
Major North American Fertilizer Production Locations
- Existing N Complex
- Select N Expansions and Greenfields
Source: CRU, Fertecon, USDOC, PotashCorp
2017 Sc. 1: assumes major debottlenecking and expansions proceed at existing sites. 2017 Sc. 2: In addition to Sc. 1, three greenfields proceed.
0
5
10
15
20
25
2011 Sc. 1 Sc. 2
US Production Canadian Production Offshore Imports
Million Tonnes N
New Capacity Expected to Impact Imports
NA Nitrogen Supply Profile Scenarios
• Agriculture fundamentals are providing an optimistic backdrop for the upcoming fertilizer season – especially North American N demand.
• Appears to be minimal relief in cost profile for key offshore producing regions.
• Numerous projects in various stages of development but history shows timing of completion is often optimistic.
Concluding Summary and Comments
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