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Back to the Future: The Outlook Post-Boom Bernard Brentnall, Director Fertilizer & Chemical Consultancy Ltd FAI Meeting February, 2009.

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Presentation on theme: "Back to the Future: The Outlook Post-Boom Bernard Brentnall, Director Fertilizer & Chemical Consultancy Ltd FAI Meeting February, 2009."— Presentation transcript:

1 Back to the Future: The Outlook Post-Boom Bernard Brentnall, Director Fertilizer & Chemical Consultancy Ltd FAI Meeting February, 2009

2 The OPEC Macro-Cycle A 30-year cycle reaching its end? Initiated by population growth and famine Nirvana = self-sufficiency in food Government driven investment (plus IBRD, Détente,etc) The fight for processing value The dying days of colonial imperialism and the fight to resist change

3 Arab Gulf (N)Indonesia (N, P 2 O 5 ) Brazil (N, P 2 O 5, K 2 O)Mexico (N, P 2 O 5 ) Bangladesh (N, P 2 O 5 )Morocco (P 2 O 5 ) China (N, P 2 O 5, K 2 O)North Africa (N, P 2 O 5 ) East Europe (N, P 2 O 5 )Malaysia (N) India (N, P 2 O 5 )Pakistan (N, P 2 O 5 ) Government-Inspired Fertilizer Investment Programmes

4 Top-5 Urea Producers, 2007 Source: IFA/FCC

5 Top-5 Urea Exporters, 2007 Source: FCC/IFA Note: China includes adjustment for cross-border sales to Vietnam

6 Top-5 MAP/DAP Producers, 2007 Source: IFA

7 Top-5 MAP/DAP Exporters, 2007 Source: IFA

8 KCL Production and Exports, 2007 Source: IFA

9 What Now (1)? The normal post-boom symptoms: Stocks of high-cost material Inability to purchase until stocks are sold Nervousness amongst those purchasers in a position to purchase new product Hand-to-mouth trading and purchasing Doubts as to the viability/reliability of importers/merchants

10 What Now(2)? Post-boom peculiarities in 2009: The gumming up of the financial and credit systems: LCs, collateral, trust. No build-up of grain and food stocks Bio-fuels are built into the system A rapid response in production cut-backs All quiet on the project front – capital costs have risen by 50-100% during the last cycle.

11 The Decline of Horse-power Dawson IFS

12 What Next? Is looking back a guide to the future? All nutrients were in chronic oversupply. Now they are not. A new cost structure has been established. There are differences between the nitrogen and extractive industries based on the distribution of resources

13 Nitrogen

14 Prilled Urea fob Middle East Current US$/t HighLow 1974-7539040 1985-8620080 1995-9624063 2008-09815240

15 …and the end of a Super-Cycle (since 1973). Source: FMB/FCC/IMF

16 Ukraine: New Feedstock Situation (from January 2009) Costs to fob, 2010 Oil Price US$ per bbl Ammonia US$/t Urea US$/t @40225-310170-215 @70330-430245-300 @100435-565320-385 Note: Effective oil input price (given lag mechanism) 2009 Average= c. US$75 per bbl

17 Swing Export Capacity (1) 2007 Exports (thousand tonnes) AmmoniaUreaANUAN Ukraine1,4503,025961111 Romania8776308231 Bulgaria20-24390 Subtotal1,4783,8011,208342 World Trade19,17237,08818,6976011 Share of World Total 7.7%10.2%6.5%5.7% Source: FCC/IFA

18 Urea Project Outlook UREATotal2008200920102011/2012 Incremental Capacity (Excl.China) 19.62.74.63.19.2 Total Urea market (2007)141.1 Proportion13.9%

19 China: Incremental Urea Capacity +16.8 million t/a new urea capacity due 2008-11 But will feedstock be available/suitably priced? Natural gas remains subsidised at US$2.5-3.5 per MMbtu Reports of closures of coal-based nitrogen units (total existing capacity c.12-15 million tonnes N)

20 Phosphates

21 DAP US Gulf fob Bulk Source: FMB

22 Phosphate Rock Reserves (billion tonnes) Reserves% Share World18.0100% Of which: China6.637% OCP5.732% Others5.731% Source: US Geological Survey

23 The Build-up of Chinese Ammonium Phosphates Capacity (million tonnes) 20052012Change Total9.9119.01+9.10 DAP7.8814.42+6.54 MAP2.034.59+2.56 Source: FCC

24 Whither Merchant Rock? OCP exported 14 million/t rock out of 31 million/t in 2007- ±50% of acid-grade rock. Most rock exporters are focusing on captive processing at the expense of exports. The only new supply of rock under construction is Bayovar, Peru – 3 million t/a. No wonder Yara bought Kemira!

25 Potash

26 Average Standard MOP fob Vancouver Source: FMB

27 KCL Production and Exports, 2007 Source: IFA

28 Whither Potash? The only obvious locations for new mines are Canada, Russia and, perhaps, Belarus. Grassroots projects cost up to US$ 2.5 billion for 2 million t/a. Uralkali was looking at a breakeven of US$ 500/t KCl at a new mine. Savings of about 30% can be made using an existing location – PotashCorp and Mosaic. Supply management has a 30 year history. The need for cash-flow is the one weakness.

29 Thank you for your attention Bernard Brentnall, Director Fertilizer & Chemical Consultancy Ltd FMB House, 6 Windmill Road, Hampton Hill, Middlesex TW12 1RH, UK Tel: +44 20 8979 7866; Fax:+44 20 8979 4573 Email: bernard.brentnall@fertchem.co.uk www.fertchem.co.uk


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