More than 1,600 leaders of the fertilizer industry met in Vienna, Austria, last week to discuss the impact of record prices on the industry and end users. Increased demand for fertilizer has caused the price increase because new production is not yet online.
IFA reports showed that capacity across the board remained relatively stable during the past 10-15 years, while recent demand skyrocketed in the past two years. The higher prices the industry currently enjoys are allowing companies to afford new investments in production facilities.
The problem for buyers is that the timeframe from initiation of building a new plant or opening a new mine will still be at least three years. Large fertilizer importers such as India and Pakistan will continue to face a problem of balancing their fertilizer needs and their national treasuries.
J.S. Sarna, secretary to the Indian Department of Fertilizers, told IFA delegates that the subsidies planned for the 2007-2008 fiscal year are budgeted for US$9.2 billion. Next year the amount is estimated to be US$22.5 billion. He said increases in the price paid for fertilizer cannot keep rising at current levels without a major economic and social disruption.
The rising prices and the trend for continued high prices brought out what one delegate called the largest number of financial institutions he has ever seen attending the annual event.
One Asian trader said he was dumbstruck by how many investment bankers were at the conference. He said he took as many meetings with potential financiers as he did with his regular customers.
IFA also noted that plants were operating at levels higher than anticipated, according to sources. On the average, global ammonia plants ran at 88 percent of capacity for 2007, compared to 86 percent in 2006. Urea plants ran at just above 90 percent capacity last year, a level previous estimates considered unlikely.
An IFA assessment concluded that the slight surpluses that currently exist could be cut into as capacity grows in the next five years.
One observer noted that until the new capacity is online, prices would most likely remain high. He added that high natural gas and petroleum costs would also keep adding to the final price of fertilizers.