Argus FMB North American Fertilizer: Markets at a glance. Fertilizer illuminating the markets. Market Reporting Consulting Events

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1 Argus FMB North American Fertilizer: Markets at a glance Fertilizer illuminating the markets Market Reporting Consulting Events

2 Argus North American Fertilizer: Markets at a glance About Argus FMB Founded in 197, Argus is a leading provider of price assessments, business intelligence and market data for the global crude oil, petroleum products, gas, LPG, coal, electricity, biofuels, biomass, emissions, petrochemicals, fertilizer and transportation industries. In 211, Argus purchased FMB, the market leader in fertilizer price reporting, news and events since Argus and FMB are developing new and improved services for the fertilizer community, including personal customer dashboards showing key prices, graphs and news. About Argus FMB North American Fertilizer Published weekly on Thursdays, the report offers an authoritative source of benchmark-quality price assessments for regional and site-specific terminal hubs. Markets Covered Ammonia Nitrogen (prilled and granular urea, UAN, AN, and amsul) Phosphates (DAP, MAP) Sulfur and sulfuric acid Potash Barge freight and quarterly rail feature Key Features Market pricing and analysis Freight assessments Nitrogen feedstock Crop fundamentals Related markets coverage International insight Volume-weighted-average US urea price Industry news Trademark notice: ARGUS, ARGUS MEDIA, the ARGUS logo, DEWITT, FMB, FUNDALYTICS, METAL-PAGES, JIM JORDAN & ASSOCIATES, JJ&A, ARGUS publication titles and ARGUS index names are trademarks of Argus Media Limited. 2

3 North American Supply Chain A Theoretical View of Urea Export price $/t fob Cost of production Cost to move to market Producer margin Importer costs Ocean freight to US Gulf Stevedoring 1pc shrink Cost of money Importer margin 3-35 days transit Middle East to Gulf 7 days to import, throughput to barge Barge price $/t fob Barge freight upriver 1pc shrink Through put at warehouse Wholesale margin 21 days from NOLA to Twin Cities terminal Wholesale $/st fot Truck freight to retailer 1pc shrink Blending Retailer margin 7-15 days to get retail to customer Retailer $/lb Truck freight to farmer Field application costs 5-7 days to farmer Delivered to farmer $/lb 3

4 Key themes Nitrogen Low urea global sales prices have tested producer viability. Higher cost producers shut down (eastern Europe, Ukraine) as prices slipped below costs (sub-$3/t fob) in late 213 while Chinese fob prices generally set the market floor. In North America, low natural gas prices and strong production margins continued inspiring nitrogen expansion investment. On the demand side, lower corn prices in 213 prompted cautious fertilizer buying in the fall. US urea barge prices dropped below international benchmarks and monthly import volumes lagged as a result until US prices realigned with international levels in the first quarter of 214. Prices subsequently firmed on an extended application and increased just-in-time buying. On the supply side, western Canada production difficulties resulted in less cross-border trade to the US and more movement of US imports into the Northern Plains and Pacific Northwest regions. Meanwhile, China s eased export tariffs began allowing more stable year-round urea trade. China s domestic production continued increasing with record high export volumes of 1mn t expected in 214. Additionally, China s growing caprolactam production will increase byproduct ammonium sulfate (amsul) and export availability while pressuring higher cost capro producers. Following the April 213 explosion in West, Texas, ammonium nitrate regulation remains a work in progress, casting doubt on longer term demand in the US. Major producers are focusing production toward industrial consumers and away from agricultural. 4

5 Key themes Ammonia In the US, lackluster fall 213 direct applications prompted length in the US, but the domestic market saw a record 214 spring application. The US usually applies around 2mn-2.5mn st in the spring and 1.3mn-1.5mn st in the fall. The US exported a record volume of nearly 8,t in December 213 because of the supply length. Imports reached a record low in February 214(around 294,t) while the Tampa price dropped to a year low of $415/t cfr. Prices rebounded in the spring as the $/unit N value of ammonia made it an attractive nitrogen source In response to the weak fall, the US-Ukraine price relationship inverted in the fourth quarter of 213 as low Tampa cfr prices made Ukrainian import cargoes cost-prohibitive. Eastern Europe tensions have stymied the trading environment in the second quarter of 214 while Russia increased Ukrainian gas prices. Ukrainian producers are expected to enter further voluntary shut downs when selling prices drop below production costs around $45/t fob. In trade developments, PotashCorp (PCS) has agreed to supply Morocco s OCP with ammonia, which is expected to ship ex-trinidad. CF Industries will supply ammonia to Mosaic with new Henry-Hub natural gas-based price formula for domestic tons no later than 217. Gas platform maintenance and subsequent gas supply curtailments are expected to continue impacting Trinidadian production (and US imports thereof) during the fall. 5

6 Key themes Phosphate In the US, DAP prices saw greater year-over-year volatility in as the market began transitioning amid structural changes. North American export entity PhosChem disbanded effective 31 December 213. Mosaic acquired CF s phosphate assets in March 214. Amid the CF acquisition and an unclear outlook for PCS dry product capacity utilization, Mosaic has an even greater stronghold on the domestic market. To ensure supply for its US customers, PCS entered into a distribution agreement with Moroccan producer OCP and imported its first cargo mid-summer after choosing to close the Suwannee chemical plant in Florida. Following tight supply and rising prices in the first quarter of 214, waning DAP/ MAP demand in the northern hemisphere and increased domestic production led to declining barge values heading into summer. Pricing found a floor after Mosaic booked significant tonnage for summer refill owing to an empty distribution system. In summer 214, Mosaic began a near-24 month upgrade project at its New Wales, Florida, facility and is expected to continue focusing production toward enhanced MAP products. This has contributed to concern over tight MAP supply availability. Globally, India remains the key swing factor for global supply and demand. Imports are expected to recover from 3.6mn t toward a more comfortable 4mn- 5mn t. As China, Saudi Arabia and Morocco ramp up production the US has been forced to focus on regionalization to adjust to increased international competition. Potash Globally, the break up of the Belarusian Potash Co (BPC) exporting group in July 213 exacerbated already-falling potash prices. Russia s Uralkali pursued a volume-over-price strategy, further pressuring global prices toward $3/t cfr. 6

7 Key themes Potash continued North American producers took extended turnarounds amid unfavorable market conditions in the 213 summer/fall. Lower potash prices discouraged greenfield projects and put pressure on junior companies. PotashCorp (PCS), Mosaic and Intrepid announced layoffs on lower profits But the market found support in early 214. Global producers settled firsthalf annual supply contracts with Chinese buyers at $35/t cfr, signifying the bottom of the market. This was followed by weather-related rail shipment delays tightening 214 spring availability in North America and firming prices. Producers are expected to make adjustments into the third quarter to handle tight supply and fulfill market requirements before the fall application period. Sulfur and sulfuric acid US sulfur production is stable-to-firmer despite strong domestic light, sweet crude production. Demand for and availability of heavy crude remains strong. Meanwhile, Canadian offshore formed sulfur exports have come under pressure, in part because of lower production while high volumes of Canada s molten sulfur continue to push into the US. As a result of strong imports to the US, firm production and flat to down consumption, solid sulfur exports from the US Gulf coast have increased to balance the market. Offshore sulacid import prices in the fourth quarter of 213 through the first quarter of 214 resulted in negative netbacks for European suppliers before firming in the second quarter. Increased demand from industrial users, including the metals mining sector, is supporting consumption prospects. 7

8 Nitrogen North American urea imports account for 16pc of global trade volumes of 43mn t/yr. The US imported a record 7mn t in 212 while Canada imported just under 8,t. Global UAN trade volumes are around 7mn t/yr. The US is the largest UAN importer in the world at 2.5mn-3mn t/yr, followed by France at 1.8mn-2mn t/yr. The US exports in off-peak seasons. GLOBAL UREA IMPORTS BY REGION E Asia 11% S Asia 21% Middle East 4% Africa 5% Latin America 2% Oceania 4% Africa 6% Latin America 17% UAN EXPORTS BY REGION Europe (incl C Asia) 22% N America 16% Source: IFA IFA, 212 stats Europe 29% Canada s exports peaked in 211 (over 56,t) and have dropped toward 3,t as internal consumption has increased. Around 1mn t/yr AN and 1.7mn t/ yr amsul are traded globally. N America 6% E Europe 39% Source: IFA IFA AN IMPORTS BY REGION AMSUL EXPORTS BY REGION Oceania 3% E Asia 7% S Asia 2% Middle East 5% Europe (incl C Asia) 45% E Europe 11% Oceania 1% E Asia 27% Europe 5% Africa 6% Latin America 22% N America 1% IFA Source: IFA N America 11% Source: IFA IFA 8

9 Nitrogen NORTH AMERICAN N CAPACITIY Amsul US Canada AN UAN3 Urea Amsul AN UAN3 Urea 2, 4, 6, 8, 1, 12, 14, ' t Source: Argus, TFI Argus, TFI The US imports close to 3mn t/yr UAN. Russia and Trinidad typically account for 2-3pc of imports, with additional tonnage from Egypt, Canada, Romania and the Netherlands. t 4, 2, -2, -4, US UAN US UAN TRADE trade BALANCE balance Balance Imports Exports Source: GTIS GTIS Canada is a net exporter with product typically moving to the US. It also imports around 25, t/yr (eastern provinces), with its import appetite growing significantly since 21. mn t Canada CANADA urea UREA TRADE trade BALANCE balance Balance Exports Imports Source: GTIS GTIS 9

10 Nitrogen US AMSUL TRADE BALANCE t 1,4 1,2 1, Balance Exports Imports Source: GTIS The US exports around 1.1mn t/yr amsul. Brazil accounts for nearly 5pc of US export volume, with other Latin American countries featuring heavily as primary trade partners. The US will export around 1, t/yr to Canada. This trade is usually opportunistic on regional circumstances and seasonally-dependent, given Canada is a net exporter of amsul. More Chinese amsul is being exported to the US with 213 imports ex-china nearly 43,t. MAJOR US UREA TRADE PARTNERS Indonesia 4% Russia 5% Venezuela 4% Middle East 44% Trinidad 6% Egypt 6% China 9% Canada 22% GTIS Source: GTIS Canada exports around 1.3mn t/yr on average to the US. Egyptian and Trinidadian exports to the US have declined in recent years because of gas supply problems at these production points. This has given an opportunity for more Chinese and Indonesian product to gain market share. 1.

11 Nitrogen MAJOR US AN TRADE PARTNERS The US has imposed antidumping duties on most FSU product, with the exception of one major producer. The US imports around 7, t/yr AN. More than half the volume arrives from Canada, though product originating from Netherlands and Georgia account for around Lithuania 3% Bulgaria 3% Georgia 23% Netherlands 18% 2pc of imports, on average. Despite a record import year in 212 (nearly 824,t), the US is expected to see declining import volumes as the regulatory environment evolves with regards to chemical safety. Canada 53% Source: IFA GTIS TOP UREA CONSUMING STATES 1, 8 st urea SD MN ND AR MT Source: AAPFCO AAPFCO 212 TOP UAN CONSUMING STATES Top UAN consuming states 1,8 st 1,2 6 NE IL IA KS TX Source: AAPFCO 11

12 Nitrogen TOP AN, AMSUL CONSUMING STATES 18 states 12 st 6 MO TN AL TX AL MN CA SD WI ND AN Amsul AAPFCO Source: AAPFCO UREA, UAN BARGE PRICES $/st fob Jan 29 May 21 Sep 211 Jan 213 May 214 UAN Urea AMSUL, AN prices Jan 29 May 21 Sep 211 Jan 213 May 214 Black Sea, standard amsul $/t (left) Houston/Pasadena, granular amsul $/st (right) Black Sea AN $/t (left) Nola AN $/st (right) 12

13 Ammonia AMMONIA IMPORTS BY REGION E Asia 14% Oceania 1% Europe (incl C Asia) 35% S Asia 8% Middle East 4% Africa 5% Latin America 5% N America 28% IFA Source: AAPFCO North American ammonia imports account for nearly one-third of globally traded volumes of around 19mn t/yr. The US accounts for nearly all North American ammonia imports with minimal cross-border movement into the nearby region. NORTH AMERICAN NH3 CAPACITY Canada US 3, 6, 9, 12, 't TFI Source: TFI 13

14 Ammonia US NH3 TRADE BALANCE 8 4 mn t Balance Exports Imports Source: GTIS Canada is self-sufficient in ammonia, and exports 1.1mn-1.2mn t/yr on average. Product moves almost exclusively to the US, accounting for around 2pc of US imports. US exports in 213 increased more than six-fold yearover-year, totaling 241,t. As domestic capacity increases, seasonal/ opportunistic ammonia exports could become more regular. MAJOR US NH3 TRADE PARTNERS Indonesia 1% Saudi Arabia 1% Venezuela 3% Russia 8% Mexico 1% Trinidad 6% Ukraine 7% Canada 19% GTIS Source: GTIS TOP AMMONIA CONSUMING STATES 9 75 'st IA IL KS IN ND NH3 Source: AAPFCO 14

15 Ammonia TAMPA AMMONIA CFR 75 6 $/t Jan 29 May 21 Sep 211 Jan 213 May 214 Phosphate The international phosphate market continues its multi-year evolution toward more regional trade because of increased competition from other major exporters. GLOBAL DAP/MAP EXPORTS 28 GLOBAL DAP/MAP EXPORTS 213 Russia 21% Rest of world 11% United States 49% Russia 16% Rest of world 4% United States 29% Morocco 6% Morocco 18% Saudia Arabia 7% China 13% Saudia Arabia % GTIS Source: GTIS China 26% Source: GTIS GTIS 15

16 Phosphate DAP/MAP PRODUCTION CAPACITY Canada US 2,5 5, 7,5 1, 12,5 15, t Source: TFI,Agrium DAP/MAP TRADE BALANCE 8 6 US DAP/MAP trade balance Canada DAP/MAP trade balance mn t 4 2 mn t MAP trade balance DAP trade balance MAP trade balance DAP trade balance DAP/MAP imports DAP/MAP exports DAP/MAP imports DAP/MAP exports Source: TFI TFI Source: TFI 16

17 Phosphate US DAP RECIPIENTS 213 US DAP RECIPIENTS 28 Rest of world 39% Japan 6% Argentina 7% India 22% Mexico 8% Brazil 18% GTIS Source: GTIS Japan 6% Argentina 2% Mexico 4% Rest of world 2% Brazil 4% India 64% Source: GTIS GTIS Capacity increases in China, Morocco and Saudi Arabia have displaced US exports to key markets like India. US MAP EXPORTS Columbia 5% Rest of world 17% Canada 37% Argentina 6% Australia 11% Brazil 23% Source: GTIS, GTIS 3 yr avg 17

18 Phosphate TOP P25 CONSUMING STATES 5 4 st IA IL MN NE SD 212 P2O5 use Source: AAPFCO DAP/MAP NOLA BARGE PRICES $/st Jan 29 May 21 Sep 211 Jan 213 May 214 DAP Nola barge MAP Nola barge 18

19 Potash POTASH IMPORTS, BY REGION POTASH EXPORTS, BY REGION N America 17% Europe (incl C Asia) 14% Oceania 1% E Asia 31% Latin America 24% Africa 2% Middle East 1% S Asia 1% IFA Source: TFI Europe (incl C Asia) 47% N America 36% Middle East 14% Latin America 3% IFA Source: TFI North American potash imports account for 17pc of global trade volumes of 38mn t/yr. North American potash exports, primarily those from Canada, account for 36pc of global trade. NORTH AMERICAN MOP CAPACITY mn t KCl 8 4 PotashCorp Mosaic Agrium Intrepid Nameplate 213 production Company filings Source: Company filings 19

20 Potash CANADA MOP EXPORTS mn t KCl Source: GTIS Source: GTIS The US is a net importer of MOP with the majority of its 6.5mn-8mn t/yr imports coming from Canada. US exports are from smaller production sites in New Mexico and Utah. Canadian MOP is often re-exported through US Pacific Northwest ports. Canada exports around 15mn-16mn t/yr. MAJOR US MOP TRADE PARTNERS MAJOR CANADA MOP RECIPIENTS Chile 1% Israel 2% Russia 9% Canada 88% Source: GTIS, GTIS 3-yr avg South Korea 1% New Zealand 1% Colombia 1% India 4% China 7% SE Asia 18% Brazil 12% US 56% Source: GTIS, GTIS 3-yr avg 2

21 Potash TOP MOP CONSUMING STATES st MOP IL IA IN MN MO Source: AAPFCO AAPFCO TOP SOP CONSUMING STATES 12 9 st SOP 6 3 MOP PRICES 1 CA FL ID WA OH Source: AAPFCO AAPFCO $/t $/st 25 1 Jan 29 May 21 Sep 211 Jan 213 May 214 Vancouver fob Nola fob 21

22 Sulfur and sulfuric acid Canadian sulfur exports accounted for 26pc of global exports of close to 22mn t in 212. Canadian exports include molten volume to the US of around 2.3mn t/ yr. The US exported 1.8mn t in 212. US sulfuric acid imports include Canadian supply which accounted for 69pc of 213 volume. GLOBAL SULFUR EXPORTS, BY COUNTRY GLOBAL SULFURIC ACID IMPORTS, BY COUNTRY Canada 26% Iran 5% Japan 6% Qatar 1% US 34% Chile 33% Russia 15% Kazakhstan 14% Abu Dhabi 1% Saudi Arabia 14% IFA, 212 stats Source: IFA India 8% Brazil 6% Morocco 6% China 13% GTIS, 213 Source: GTIS NORTH AMERICAN SULFUR PRODUCTION Canada US ,25 4,5 6,75 9, t Source: USGS, USGS, ERCB, ERCB, BC BC Gov Gov 22

23 Sulfur and sulfuric acid The US is a net importer of molten sulfur with imports from Canada, Mexico and Venezuela. The US also exports solid sulfur. Canada is an exporter of sulfur with solid product going offshore and molten going to the US. US SULFUR TRADE BALANCE mn t Balance Exports Imports GTIS Source: GTIS CANADA SULFUR EXPORTS mn t Source: GTIS MAJOR US SULFUR RECIPIENTS MAJOR CANADA SULFUR RECIPIENTS Morocco 7% Chile 8% Brazil 49% Others 2% US 43% Mexico 24% China 2% China 12% Source: GTIS Australia 17% GTIS Source: GTIS 23

24 Sulfur and sulfuric acid NORTH AMERICA SULFUR EXPORT PRICES 25 sulfur export prices Jan 21 Feb 211 Mar 212 Apr 213 May 214 Vancouver spot $/t fob US Gulf spot $/t fob US SULFURIC ACID IMPORT PRICE 1 import price Sep 212 Feb 213 Jul 213 Dec 213 May 214 US spot import $/t cfr 24

25 Project watch list Nitrogen CF adding up to 2mn-2.6mn st/yr urea and 1.8mn st/yr UAN production at its Donaldsonville, LA, and Port Neal, Iowa, sites by 216. Agrium debottleneck/brownfield in Borger, TX, will add 67, st/yr urea and 16, st/yr gross ammonia capacity by mid-215. OCI s Iowa Fertilizer will produce 1.5mn-2mn st/yr nitrogen fertilizer by late 215. UAN expansions will shift US position toward self-sufficiency in coming years. In China, Sinochem s 1.6mn t/yr urea plant will come online in 214. Producers Hebei and Henan also have 8, t/yr plants expected on stream in the next year. BodaShidi s 1mn t/yr prilled plant to start in July. In total, around 8mn t/yr new urea production is coming online with an expectation that higher cost producers will shut down. Saudi Arabia s SAFCO 5 will come online in early 215 with an extra 1.1mn t/yr urea capacity. Indonesia s Pupuk Kaltim should begin producing 1.2mn t/yr in 214. Ammonia Yara-BASF plan 75, t/yr ammonia unit in Freeport, TX, via hydrogensynthesis. Incitec Pivot progressed on its 8, t/yr plant in Louisiana with first production expected in 216. Simplot is evaluating adding ammonia production in Rock Springs, WY, to achieve backward integration. 25

26 Project watch list Ammonia continued OCI is working on debottlenecking its Beaumont, TX, plant which will increase capacity to 35, t/yr. Yara is upgrading Tringen I in Trinidad, adding 26,t capacity to existing capacity of 1.3mn t/yr at the complex. Venezuela s Pequiven added1, t/yr capacity. Urea expansion at Saudi Arabia s Safco plant will decrease its ammonia export availability. Russia s Acron plans to build a new 68, t/yr unit. China s domestic caprolactam production increases will impact higher-cost producers. This, in turn, could disrupt southeast Asian industrial ammonia feedstock demand as producers struggle to afford higher-priced product. Phosphates PCS to likely focus production away from dry products and more toward liquid, feed, industrial. Mosaic s raw material consumption to change with production focused on MAP-enhanced products. Morocco s OCP will have 4mn t/year DAP/MAP online in 215. A secondary expansion will add six more units by 22 for a >13mn t/yr capacity. Saudi Arabia s Ma aden will have 3mn t/year DAP/MAP online in 216. Hubei Yangfeng, China will have 6, t/year online in

27 Project watch list Potash K+S Legacy project is a 2.86mn t/yr solution mine under construction in Dufferin, Saskatchewan. Commissioning is expected in 216. The company has achieved connection of first extraction cavern and secured the location for a to-be-built export hub in Vancouver. BHP Billiton Jansen project is projected to become a 1mn t/yr conventional mine in Saskatchewan. It is approximately 3pc complete as the Australian miner slowly progresses to time commissioning with favorable market conditions. BHP is open to partnering with other companies, but considers potash a potential fifth pillar of its company. Mosaic continues its Esterhazy K3 expansion. Two new mine shafts at the Esterhazy, Saskatchewan, mine will increase capacity by.9mn t/yr with completion expected in 217. Total Esterhazy capacity would be 7.2mn t/yr. Sulfur and Sulfuric Acid PCS will consume less sulfur on plant closures (Suwannee River Chemical Plant in White Springs, Florida, and the sulfur-based sulacid plant in Geismar, Louisiana). Mosaic s board approved building a 1mn t/yr sulfur melter in Florida, allowing for the import of offshore solid sulfur. Mosaic will increase its MicroEssentials production capacity, providing sulfur consumption support. Global sulfur surplus will emerge as new supply from heavy, sour oil refining and gas processing ramps up. Mississippi Power project will add byproduct sulacid (175, st/yr) to the market. 27

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