Minerals to help feed the world

Global fertiliser trades are in a period of lower prices and revenue growth, as the world market accommodates a surplus of supply. But the World Bank has forecast that fertiliser prices can still rise by 1% in 2017. The medium-term trend for the world fertiliser trades is also growth, as is the case for grain and agribulk commodities. The World Bank notes that higher agricultural prices should improve farmers’ profitability – and demand for fertilisers.

The broader picture is that the world’s population of 7.5B is growing – the United Nations estimates there will be 8.1B by 2025 – which is creating more demand for crops and fertilisers. The UN Food and Agriculture Organisation  (FAO) says there will be a need to double the yield of staple crops by the mid-century. The FAO has forecast that global demand for fertiliser will have risen by around 10% to 200 Mtpa between 2013 and 2018.

Nitrogen is the most consumed nutrient, due to its important role in crop production, according to the International Fertilizer Industry Association (IFA). Urea is the key source of nitrogen fertiliser globally, representing about 54% of the world market, with production increasing to meet demand, says the IFA. Diammonium phosphate (DAP) is the most consumed phosphorous fertiliser, due to its high phosphorous and nitrogen concentration, and represents more than 50% of the market. 

The IFA also reports that the most used potassium fertiliser product worldwide is potassium chloride – also known as muriate of potash (MOP) –which accounts for almost 70% of all demand for potassium fertilisers. In the US, Brazil  or India, potassium chloride has accounted for more than 90% of all potassium sales in recent years. The FAO has reported that the global demand for potash is expected to grow by 2.6% from 2014 to 2018.

Black Sea shadows

However, this year, fertiliser supplies have been disrupted, with buyers hit by problems at terminals on the Black Sea. In January, Ukraine’s Yuzhny port, which is one of the world’s largest nitrogen export terminals, endured plant
shutdowns and legal battles that brought shipments of ammonia, as well as urea, to a near standstill. Odessa Port Plant was forced to suspend production of ammonia and urea from December to April, amid unfavourable markets
and following failed privatisation initiatives. 

Meanwhile, a legal dispute over surcharges on ammonia transit tariffs between OJSC ToglittiAzot, the Russian fertiliser producer, and Ukrainian state pipeline operator, Ukrhimtransammiak, has stalled supplies to Black Sea terminals. ToglittiAzot has the capacity to pump 6,000t a day of ammonia to Odessa. 

Ukrhimtransammiak has refused to transport ammonia for ToglittiAzot, which has filed a US$11.5M lawsuit at the arbitration court of Ukraine’s Chamber of Commerce and Industry. 

Ameropa, which is a leading buyer of Black Sea ammonia, was hit by the curtailment of supplies via the Ukraine staterun pipeline. The Switzerlandbased international chemical and fertiliser trader has a global network of customers
including Morocco, India and Turkey, as well as the European market. The Swiss trader had to circumvent the hortage via the spot market and supplies from Algeria. 

The ammonium nitrate market has remained firm this year, although supplies are tight as Russian producers focus on the domestic market. While supply is limited, demand is also restricted to mainly within Russia. Turkey has lifted its ban on domestic calcium ammonium nitrate sales, which it imposed last year in response to its use in terrorist bombs. However, the ban on ammonium nitrate has stayed in place in Turkey. 

Fertiliser spread 

Global demand for DAP and monoammonium phosphate (MAP) has dipped, although producers are looking to India’s imports to increase this summer. In the April to December 2016 period, 4.6 Mt of DAP arrived at Indian ports, with expectations that 5  Mt will be imported this year, according to market intelligence group ICIS.

Meanwhile, Beijing has scrapped the export tax for DAP, as well as reducing tax for nitrogen, phosphate and potash from 30% to 20%. 

Sulphur producers have also oversupplied the market, which, combined with a sluggish phosphate sector, has to put downward pressure on prices. The global supply of sulphur, which is a  by-product of oil, gas and tar sands, has been driven by new gas units in the Middle East, and OPEC, the energy cartel, continuing to maintain high oil production. Meanwhile, Mosaic, the US fertiliser giant, has opened a 1 Mtpa remelter in Florida, allowing it to take a quarter of its sulphur as seaborne imports from outside North America.

Demand for urea in Europe and Latin America has been slow in 2017, according to US information service DTN. 

Drought conditions in parts of Spain and France are expected to hit corn crops, which has made importers hesitant. 

Brazilian buyers have focused on local supplies. However, the World Bank has reported that urea prices over the first quarter gained 15%, on stronger demand from the US. China also has limited export availability, as its domestic 
market has rebounded. 

Global potash producers have seen improved demand in recent months, particularly from Brazil and China. The uptick has followed a period of sluggish demand from India, the Americas and Europe. Brazilian potash demand has
been driven by farmers looking to benefit from higher prices for soya beans, corn and sugar crops. Chinese buyers have been restocking inventories that were depleted during delayed contract negotiations last year. 

Global potash producers are in a period of consolidation,  led by Canadian giants PotashCorp and Agrium joining forces to create the world’s largest fertiliser supplier. The US$27B merger is due for completion shortly and will have its head office in Saskatoon, Saskatchewan, Canada, where PotashCorp is based, with corporate offices in Agrium’s Calgary. The tie-up brings together PotashCorp’s mines and Agrium’s distribution business to generate US$500M savings as US sales continue to decline. 

Charles (Chuck) Magro, CEO of Agrium, will head up the combined group, and believes the move offers “massive integration opportunities”. Agrium’s retail unit buys 10 Mtpa of fertiliser, with less than 200,000t from PotashCorp. “I look at the strategic fit of combining the world’s largest fertiliser producer with the world’s largest ag-retailer,” Magro said. “That makes an awful lot of sense to me.” 

The PotashCorp-Agrium entity will continue to work with Mosaic Co through the joint-venture marketing arm, Canpotex Ltd, which handles their exports outside of North America. The three fertiliser giants also use a network of  strategically sited warehouses across the US Midwest to offer ‘just-in-time’ distribution. Potash from Saskatchewan mines is railed to the Midwest and Northern Plains, with the journey taking up to two weeks. 

Despite overcapacity in the US and global potash market – with prices at near nine-year lows – K+S AG, the German chemical group, is expanding into North America. In May this year, K+S opened its new mine at Bethune, Saskatchewan, which is the first new potash mine in the Western Canadian province for 40 years. Koch Industries Inc, the US group, will store and sell K+S potash in the US, while K+S is still planning its warehouse network. 

Western Germans

Norbert Steiner, CEO of K+S, says the company expects production costs to be low enough to make the Bethune mine – which was originally to be known as the “Legacy” – profitable even with lower potash prices. K+S Bethune is located near Moose Jaw and Regina, and is expected to produce 2 Mt of potash this year. Construction of the US$4.6B project was started in 2012, and K+S persisted with the development, despite falling potash prices.

The potash will be railed to Port Moody, near Vancouver, where it will be shipped to South America and Asia. K+S Potash Canada has a long-term agreement with Pacific Coast Terminals, which included the construction of a new potash handling and storage facility at Port Moody. As well as a railcar unloading building and potash storage warehouse, the project has included water treatment facilities, automatic conveyors and shiploading equipment.

In March, National Steel Car, the Canadian manufacturer, delivered the first 177 of a 531 rail car order to K+S for the potash shipments to British Columbia. The rail cars hold the same 105t capacity as a standard unit, but are designed to be slightly shorter to accommodate more cars per train. A single opening at the top of each car has allowed for loading in motion.

The 3 km-long freight trains will run the 1,800 km journey via the Rocky Mountains to British Columbia on a weekly basis. Part of the rail fleet will transport potash to the US. K+S has signed a long-term contract with Canadian Pacific (CP) to transport potash from Bethune to west coast export terminals and the Canadian and US markets. CP has built a 30 km rail spur to connect to its main line at Belle Plaine and K+S’s newly built 14 km industrial rail line.

Russian roulette

Analysts have warned that global potash prices will be tested by production from K+S Bethune. Moreover, Switzerland-headquartered EuroChem is also poised to start producing from two new Russian potash mines. Russian tycoon Andrey Melnichenko’s fertiliser group has plans to produce 1.1 Mt of potash from its Usolskiy and VolgaKaliy mines in 2018, ramping up to 8.3 Mtpa by 2025. EuroChem will also convert 200,000t of potash to sulphate of potash in 2019, and 0.5 Mtpa by 2021. 

The additional capacity in the potash market has come as its big players are repositioning their presence. For example, Mosaic has snapped up commodity giant Vale’s fertiliser business for US$2.5B, with the deal at the end of last year also making the Brazilian the US group’s largest shareholder, with an 11% stake. The Mosaic deal, which includes US$1.25B in cash and US$1.25B in newly issued shares, has also given it further access to Brazil’s vast  agricultural markets.

In February, BHP Billiton, the Anglo-Australian miner, said it is ploughing on with the construction of its Jansen potash mine, about 135 km east of Saskatoon (Saskatchewan). BHP says potash is one of the key commodities for its future growth. The $14B project is now two-thirds completed, with excavation and lining of the shafts in progress, and work due for completion in 2019. 

However, BHP will not bring Jansen into production until after 2020, when it will generate 8 Mtpa, or around 15% of the world’s potash. In March, the Garlyk potash mine and plant in Turkmenistan opened, with a capacity of 1.4 Mtpa. Meanwhile, Sirius Minerals is moving ahead with construction of its vast mine in Northern England (see box story, p22).

With capacity coming on stream and as potash and fertiliser prices languish, there are concerns of global oversupply. But producers are looking to the bigger picture – that mouths to feed will outweigh a short-term glut.