Fertiliser Supply and Demand: Outlook for Costs and Availabilities

Keywords: nitrogen, phosphate rock, ammonium phosphate, potash, plant capacity, reserves, feedstock, investment, prices.

Prices for all three major nutrients have risen to and remained at high levels for a number of years. Phosphate and potash prices have exceeded previous records in constant dollar terms. The duration of the price boom exceeds any previous cycle over the past 40 years so questioning whether a fundamental shift has occurred in the market and whether a significant price correction should be expected in the foreseeable future. There is a body of evidence which suggests that, following a 30-year macro-cycle of oversupply, the fertiliser business is moving into a period of sustained tight supply.

The driving force behind developments in the nitrogen sector is feedstock — availability and price. The creation of distributional infrastructure and the surge in investment in liquified natural gas (LNG) means that it now provides strong competition for the feedstock sector, not only in respect of methane but also for finance and equipment supply. This competition has contributed to soaring construction costs. The rapidly rising feedstock prices together with a shortage of finance are resulting in a curious lack of new investment in new plants despite high product prices. For the time being high-cost producers are able to operate profitably and meet growing market demand. Should demand waver or new plants create a surge of availability, the high-cost capacity will act as a swing producer, thereby correcting any market imbalance.

The phosphate sector experienced substantial over-investment in the 1970s and 1980s and has been in oversupply for the past thirty years. Growth in demand was more restrained than in the case of nitrogen and thus made no great impression on surplus availability. Since the beginning of this century rapidly increasing consumption in much of the Developed World has finally corrected the supply/demand imbalance. The rapid rise in the Chinese ammonium phosphate industry has been nullified by the decline in the US industry. We have now reached the point where the Moroccan and Chinese industries can exert significant influence over the world market by adjusting overall production and export patterns. Expansion in the phosphate sector is limited by the relative dearth of deposits of good quality rock which can be developed economically. It is also inhibited by the same cost escalation that affects nitrogen and most other mining and processing industries. No reason is seen for the market to collapse in the foreseeable future.

As with phosphates, severe oversupply in the potash sector has been the norm for 30 years. A surge of demand in the Developing World has seen the end of the oversupply, resulting in record prices. Unlike the nitrogen and phosphate sectors, China does not have the reserve base to become a major player in potash and will continue to import substantial volumes. Supply looks as though it will remain very tight for the foreseeable future, with additional production coming only from expansion of the existing Canadian industry. Projects elsewhere are some way from implementation and are affected by the same cost escalation being experienced by the other sectors.

Bernard A Brentnall, Fertilizer & Chemical Consultancy Ltd, Travean, Hornash Lane, Shadoxhurst, Kent TH26 1HY, UK.

32 pages. 19 figures, 11 tables.