The recently held International Fertilizer Association conference in Marrakesh, Morocco, was as informative as ever in providing insights into market trends for fertilizer and fertilizer raw materials.
Concluding the congress of fertilizer industry chiefs, the IFA released a report on the outlook for the years ahead for the fertilizer industry. These are the seven main topics that the report covered;
1. Legislation
There are several changes to the law in key markets in the upcoming 12 months, the conference warned fertilizer manufacturers and raw material suppliers of some of these changes.
It noted how, as part of a global trend, the EU is focusing more attention on creating a ‘circular economy’, which will have a significant impact on the fertilizer industry. In a recent press release the EU Commission stated that, “Today [17th March 2016] the Commission is proposing a Regulation which will significantly ease the access of organic and waste-based fertilisers to the EU single market, bringing them on a level playing field with traditional, non-organic fertilisers. This will create new market opportunities for innovative companies while at the same time reducing waste, energy consumption and environmental damage.”
Meanwhile, Germany recently amended its Fertilizing Ordinance to put the country in-line with EU directives on nitrates. The legislation is focused on limiting N and P balance surpluses.
The IFA continues by observing other legislation changes in the global fertilizer market, stating, “In India, the government continues to adapt the country’s fertilizer subsidy policy; it is expected to scale-up, potentially nationwide, Direct Benefit Transfer (DBT) to farmers in an attempt to replace the current fertilizer subsidy regime. Nigeria has recently launched a ‘Presidential Fertilizer Initiative’ expected to increase crop yields and save US$ 200 million in foreign exchange by increasing production of soil- and crop-specific NPKs by 1.5 million metric tonnes (Mt) in 2017.”
The 85th IFA Annual Conference was held in the Palais de Congres, Marrakesh.
2. Demand for Fertilizer
The IFA is generally upbeat about the future for the fertilizer market, noting, “Following a firm increase in 2016/17, world demand is anticipated to grow modestly in 2017/18. World fertilizer demand grew firmly in 2016/17 (+2.4%) to an estimated 186 Mt.” Adding that, “Under the baseline scenario, global fertilizer demand is seen as growing on average by 1.5% per annum (p.a.) between the base year (average of the three-year period 2014/15 to 2016/17) and 2021/22. Aggregate world demand is projected to reach 199 Mt at the end of the outlook period [2021].”
Three-quarters of the projected increase in volume over the next five years will be from fertilizer sales in Latin America, South Asia and East Asia.
The report also notes the great potential for a growth in fertilizer usage in Africa. As a recent article on the chemical trading website SPOTCHEMI noted, “low farm productivity, has created an environment which is crying out for fertilizer manufacturers to begin distributing farm products to Africa.”
However, the IFA report is less positive about the rest of the world, stating that, “Demand growth in developed regions is seen as weak, with better prospects in Oceania than in North America and Western & Central Europe.” Adding that, “Other challenges confronting the fertilizer sector include more stringent environmental regulations, increasingly volatile energy prices, competing uses of feedstock, and rising trade protectionism.”
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3. Supply of Fertilizer
Fertilizer suppliers had a challenging year in 2016, which was largely due to lower crop prices, and unpredictable energy values. This in turn brought uncertainty to fertilizer markets, and kept prices at their lowest point for the past five years.
These low prices discouraged supply increases, and instead resulted in many fertilizer manufacturers to limit output, such that, “several producers reacted with cost reduction measures, temporary curtailments or mothballing of capacity, and consideration of trade defence measures. On average, the fertilizer industry operated at 81% of primary nutrient capacity in 2016, [as] global nutrient demand was adequately supplied from existing production capacity.”
However, a more positive outlook for the future has a number of increases in fertilizer production planned. The IFA report notes that, “Between 2017 and 2021 the fertilizer industry will invest close to US$ 110 billion in more than 65 new production units, increasing global capacity by 90 million tonnes.”
4. Supply of Phosphate Feedstock
Due to large expansions in capacity in Africa and West Asia, the global supply of rock phosphate is expected as much as 10% higher than 2016 levels.
Meanwhile the report notes that, “Global phosphoric acid capacity in 2021 is projected to expand by 12% over 2016, to 64.1 Mt P2O5 in 2021. Global capacity of the main processed phosphates would grow by 6.9 Mt P2O5 to 52.5 Mt P2O5 (110.7 Mt products) in 2021.” Adding that, “The global supply of phosphoric acid would increase by 2.4% p.a. compared with 2016, while demand would grow at 1.8% p.a., pointing to a rising potential surplus from 2017 to 2019, and then stabilizing until 2021.”
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5. Supply of Nitrogen Feedstock
Over the next 5 years, nitrogen markets are predicted to have great differences from region to region. For while deficits are increasing in Latin America and South Asia (supporting higher imports), increased domestic production is shrinking deficits (and demand for imports) in North America. Markets in Western Europe and East Asia will remain relatively stable.
Overall, the report summarises by stating, “Between 2016 and 2021 global nitrogen supply would expand by 1.8% p.a. while demand would see a 1.2% annual increase. Global urea capacity is projected to increase by a net 17 Mt (+8%), to 226 Mt in 2021.” Adding that, “Global ammonia capacity still expanding by a net 8% between 2016 and 2021, despite some massive reductions in China. [While] global urea supply (effective capacity) is estimated at 200 Mt in 2021, growing at 1.6% p.a. over 2016.”
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6. Supply of Potassium Feedstock
“Global potassium capacity is forecast to grow by an overall 20% compared with 2016, to 65.5 Mt K2O in 2021, thanks to new projects in Canada, Russia, Turkmenistan, Belarus, and China. In product terms, global potassium capacity in 2021 would reach 111.2 Mt products, expanding by a net 19 Mt over 2016, of which MOP [Potassium Chloride] would contribute 17 Mt.”
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7. Supply of Potash Feedstock
The IFA expects that there will be a widening gap between supply and demand for potash through to 2021, as demand increases are outstripped by increases in supply. The report predicts that there will be a surplus of 7.7 Mt K20 in 2021 (14% of potential supply).
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In conclusion
The report notes that, “Demand for P and K is anticipated to expand faster than that for N. The outlook for 2017/18 is influenced by ample inventories and low prices for most crops; improving economic prospects in developed countries, Russia, Brazil and Sub-Saharan Africa; and growing political uncertainty in several large fertilizer-consuming markets.”
Over capacity is another reason for short-term concern over the price of fertilizer and fertilizer raw materials. The report explaining that, “The near future appears to show a growing imbalance between rapidly increasing supply and moderate demand growth. Massive new capacity additions will be commissioned over the next five years, driven by investment decisions made four to eight years ago. Supply will be ample, if not abundant, at least up to 2021.”
But despite these over-supply challenges and regional problems, through war, trade protectionism, or economic weakness, the IFA is confident in the health of the fertilizer industry. It predicts that demand will grow (albeit modestly) by 1.2%, knowing that long-term prospects are much brighter, with some sources (such as the Food and Agriculture Organisation of the UN (pdf)) predicting that food production must increase by 70% by the year 2050.
And with a statistic like that, there is much to be confident about in the fertilizer industry.
You can read the publicly released version of the report here (pdf).
