The impact of protectionism on the global

fertilizer industryA discussion of possible scenarios

8th GPCA Fertilizer Convention, 26-28 September, Bahrain

Dr Dimitrios Dimitriou

Managing Consultant, Nexant

World is changing Rising of populism

No comment

1April 2017

Well, one comment only

How politics can influence trade and chemicals

2April 2017

In recent times there has been a political wave calling for

protectionism to support domestic industries.

3

EU and Japan hit back at

protectionism with trade deal - Politico

Protectionism in China is growing -

German ambassador to mainland - CNBC

Australia-Indonesia free trade deal

will encounter protectionism

The Sydney Morning HeraldApril 2017

World is changing - Free trade advocates!

4

Pursuing protectionism is just locking oneself at a dark room. While

wind and rain may be kept outside so are light and air. None will

emerge as a winner in a trade war! Xi Jinping

April 2017

Protectionism Political / economic background

Ammonia and urea trade

Implications of tariffs on producers competitiveness

Summary & conclusions

Agenda

5April 2017

Protectionism Political / economic background

In economics, protectionism is a deliberate intend to restrict trade between

states by imposing a range of different government policies.

What actually is protectionism?

7April 2017

A variety of policies can be used to achieve protectionist goals:

Protection of technologies

Prevent against foreign investors

Tariffs

Import quotas

Administrative barriers

Anti-dumping legislation

Direct subsidies

Export subsidies

Exchange rate control

Political campaigns advocating domestic consumption

Preferential governmental spending

Protectionism vs free trade which is the rule which is the exception?

How is protectionism implemented?

8April 2017

There is a big debate amongst economists about the advantages /

disadvantages from protectionist measures.

Does it create / keep local jobs?

Does it increase local investments or slow down efficiency?

Does it increase the cost for consumers?

Etc.

The reality is that protectionism is a wide spread economic measure and the

fertilizer industry is also affected by it.

What are the general economic implications from protectionism?

9April 2017

Fertilizer trade protectionism is not new..

10

China's urea tax reforms may spark global

'price war Agrimoney.com (Societe

Generale)

April 2017

Fertilizers protectionism interventions have been on the rise!

11

2011-2016

709

60

86

314

92

157

Trade finance

Import tariff

Production subsidy

Tax or social insurance relief

Export tax

Source: Global Trade Alert Source: Global Trade Alert

April 2017

59

80

91

69

54

100

71

0

10

20

30

40

50

60

70

80

90

100

2009 2010 2011 2012 2013 2014 2015

Number of interventions

+3%

Ammonia and urea trade

Ammonia Trade (2015, mt of NH3)

Four main centres for ammonia trade

13

0. 8

1.2

3. 0

0.4

1.40.1

0.30.4

1

2

3

4

The numbers represent the following areas:

1. Trinidad & Venezuela

2. Black Sea & Baltic Sea

3. Middle East

4. Indonesia

0.20.2

0.9

1.1

0.6

0.1

0.1

0.1

0.4

-8000

-6000

-4000

-2000

0

2000

4000

6000

Nor

thA

mer

ica

Sou

thA

mer

ica

Wes

tern

Eur

ope

C&

E.E

urop

e

Mid

dle

Eas

t

Afr

ica

Indi

a

Chi

na

Oth

er A

sia

Pac

ific

Tho

usan

d to

ns

2005 2010 2015 2020 2025 2030 2035

Source: Nexant

Source: Nexant

April 2017

Urea Trade (2015, mt of urea)

Urea trade patterns are different from ammonia

14

PP:00289 SBA/NH3Urea/2015-2016/Figs4

0.8

0.50.5

0.2

1. 6 2.7

0.5

2

The numbers represent the following areas:

1. Trinidad & Venezuela

2. Black Sea & Baltic Sea

3. Middle East

4. China

2. 04

0.7

3

0.9

0.6

1

0.6

0.4 1.1

0.3

0.3

0.2

1. 0

0.5

-30000

-20000

-10000

0

10000

20000

30000

Nor

thA

mer

ica

Sou

thA

mer

ica

Wes

tern

Eur

ope

C&

E.E

urop

e

Mid

dle

Eas

t

Afr

ica

Indi

a

Chi

na

Oth

er A

sia

Pac

ific

Tho

usan

d to

ns

2005 2010 2015 2020 2025 2030 2035

Source: Nexant

Source: Nexant

April 2017

Different current and potential future protectionist measures have an

implication on global trade:

Changes in import tariffs in large importing countries

The lowering of export tariffs in China

Potential changes in feedstock costs in the Middle East

Potential changes in fertilizer subsidy schemes in India

Potential imposition of anti-dumping duties on certain producers or countries

Etc.

One of the most important protectionist measures affecting the Middle East as

a fertilizer exporter is a potential increase in import tariffs in large import

markets. How would this affect competitiveness?

The ammonia and urea industries are truly global

can this be threatened?

15April 2017

Implications of tariffs on producers competitiveness

No tariffs on ammonia apply in US imports currently

Ammonia Delivered Cost to USGC (2016, USGC)

April 2017 17

Urea Delivered Cost to USGC (2016, USGC)

US

Lea

der

Trin

idad

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bian

Gul

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Gul

fLa

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d

WE

Lea

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pt

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Sou

th E

ast A

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(Ind

ones

ia)

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coal

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mou

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na (

Coa

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asta

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US

dol

lars

per

ton

Raw Materials UtilitiesDirect Fixed Costs Allocated Fixed CostsFreight TariffMarket Price

US

Lea

der

Trin

idad

Ara

bian

Gul

fLe

ader

Ara

bian

Gul

fLa

ggar

d

Egy

pt

WE

Lea

der

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Sou

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ast A

sia

(Ind

ones

ia)

Chi

na (

Coa

l)co

asta

l

Chi

na (

coal

)m

ine

mou

th

US

dol

lars

per

ton

Raw Materials UtilitiesDirect Fixed Costs Allocated Fixed CostsFreight TariffMarket Price

Scenario: US

imposing tariffs

Scenario: US

imposing tariffs

Source: NexantSource: Nexant

India has a rather complex system for urea import duties

Ammonia Delivered Cost to India

(2016, Cochin)

April 2017 18

Urea Delivered Cost to India

(2016, Cochin)

Ara

bian

Gul

fLe

ader

Trin

idad

US

Lea

der

Ara

bian

Gul

fLa

ggar

d

Egy

pt

WE

Lea

der

Rus

sia

Sou

th E

ast A

sia

(Ind

ones

ia)

Chi

na (

coal

)m

ine

mou

th

Chi

na (

Coa

l)co

asta

l

US

dol

lars

per

ton

Raw Materials UtilitiesDirect Fixed Costs Allocated Fixed CostsFreight TariffMarket Price

Scenario: India

raising tariffs

Ara

bian

Gul

fLe

ader

Ara

bian

Gul

fLa

ggar

d

Trin

idad

US

Lea

der

Egy

pt

Sou

th E

ast A

sia

(Ind

ones

ia)

Rus

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WE

Lea

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Chi

na (

coal

)m

ine

mou

th

Chi

na (

Coa

l)co

asta

l

US

dol

lars

per

ton

Raw Materials UtilitiesDirect Fixed Costs Allocated Fixed CostsFreight TariffMarket Price

Scenario: India

raising tariffs

Source: Nexant Source: Nexant

How would an additional 15 percent import tax on urea affect the

competitiveness of individual producers?

19

Urea Delivered Cost to India (2016, USGC)Urea Delivered Cost to USGC (2016, USGC)

-150

-100

-50

0

50

100

150

US

Lea

der

Trin

idad

Ara

bian

Gul

f Lea

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Ara

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Gul

f Lag

gard

Egy

pt

WE

Lea

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(Ind

ones

ia)

Chi

na (

Coa

l) co

asta

l

Chi

na (

coal

) m

ine

mou

th

US

dol

lars

per

ton

Delivered Cost Margin Additional Import Tax

-150

-100

-50

0

50

100

150

US

Lea

der

Trin

idad

Ara

bian

Gul

f Lea

der

Ara

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Gul

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WE

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Chi

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) m

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mou

th

US

dol

lars

per

ton

Delivered Cost Margin Additional Import Tax

April 2017

Impact of Chinese tax scenarios and implications to global trade

20

Chinese import/export tax scenarios Level of protectionism

High Import Tax/ High Export Tax

High Import Tax/ Low Export Tax

Low Import Tax/ High Export Tax

Low Import Tax/ Low Export Tax

April 2017

Impact of Brexit on trade

21April 2017

Summary & conclusions

Protectionist measures are a reality and can be politically motivated.

There is no unity among economists if protectionist measures are overall

beneficial or harmful.

Import duties often protect domestic production but can lead to increases in

prices for consumers.

Fertilizer trade is global and subject to some protectionist measures.

Producers at the high end of the cost curve are most affected by import

duties.

Low cost producers are mainly affected if specific ADD are implemented.

Protectionist measures are a reality.

23April 2017

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24April 2017

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