The International Fertilizer Industry Association (IFA) released to the public its Short-Term Fertilizer Outlook 2010-2011 on Dec. 21. The report warns of rising agricultural commodity and food prices, as seen just before the food crisis of 2007-08. It also describes the global fertilizer industry’s response to the challenge of increasing agricultural productivity worldwide. IFA estimates that the industry has invested some US$40 billion in new capacity since 2008 for the three main nutrients (nitrogen, phosphorus, and potassium) in North Africa; West, South and East Asias; and North and South Americas.
IFA said the economic recovery in 2010 was experienced in agricultural markets, with a rebound of agricultural commodity utilization and prices. It said a number of factors have contributed to an upward evolution of crop prices. The first is the heat wave that caused poor cereal harvests in the Commonwealth of Independent States (CIS), including extensive fire damage in Russia, as well as the hot and wet conditions in the Corn Belt of the United States. Second, the grain export restrictions currently in effect in Russia and Ukraine are likely to be maintained until June 2011. Third, demand for ethanol, particularly in the United States, remains high, putting pressure on grain markets. Fourth, the cereal stock-to-use ratio is declining to worrisome levels, with a significant drop in maize and wheat inventories.
“Another food crisis could be looming,” says Patrick Heffer, Director of IFA’s Agriculture Service. “The combination of the weather, trade restrictions, bioenergy growth, and low stocks takes us back to three years ago, when food prices spiralled. Based on the data we have analyzed, we are witnessing a situation very similar to what happened in the second half of 2007, with all agricultural prices going up. Today even cotton and sugar prices are high.”
Following a massive decline in fertilizer sales and consumption in 2009, the speed and extent of the recovery in the first half of 2010 surprised most analysts, leading to an annual increase of 13 percent and 7 percent over 2009, respectively. IFA is projecting growth in global fertilizer consumption of 4.7 percent for 2010/2011 and 3.8 percent for 2011/2012-by then, nutrient application rates would have fully recovered to the levels seen prior to the economic crisis of 2008.
IFA said on the supply side, the rebound in global demand and the near-empty distribution channels at the beginning of the year triggered a strong sales increase and subsequent rising operating rates for all nutrients and raw materials. However, the fertilizer industry will be able to absorb the incremental demand for food, feed, fiber, and energy production thanks to the significant investments it has made. IFA said the industry has learned the lessons of the previous food crisis and is undertaking extensive development projects in order to play its role as a key driver of sustainable agricultural intensification and improved food security. New or expansion projects are underway for: ammonia in Algeria, Egypt, Iran, Qatar, Saudi Arabia, and Trinidad; urea in Algeria, China, Egypt, India, Iran, Pakistan, Qatar, and Russia; phosphate in China, Bangladesh, Brazil, Jordan, Morocco, Saudi Arabia, and Tunisia; and potassium in Canada, Chile, China, Israel, Jordan, and Russia.
Between 2010 and 2015, some 55 urea units, 20 potash expansion projects, and 40 processed phosphates facilities are planned for completion worldwide. In addition to the $40 billion spent on new capacity for the three major nutrients since 2008, IFA estimates another US$80 billion will be invested between 2011 and 2015, with the highest levels of production, sales, and consumption seen to date occurring in 2011.
“Establishing new capacity cannot happen overnight,” explains Michel Prud’homme, director of IFA’s Production and International Trade Service. “This is the reason the industry is planning for the future. Greenfield capacity projects take from three to eight years between the start of construction and commercial production. A large-scale fertilizer facility calls for an investment of between 0.5 and 3 billion dollars.”
Global urea capacity is projected to expand by 30 percent between 2009 and 2014, to 222 million mt. During the same period, world potash and phosphates capacities are forecast to grow by 25 percent and 31 percent, respectively.
IFA says its members are investing in energy-efficiency technology and new products in order to reduce the environmental footprint of their activities. They are also helping farmers make the best use of their products by sharing good agricultural practices. During 2011, IFA forecasts a rebound of sales and robust growth in the sector.
Global nutrient sales for all uses are projected to grow by 2-3 percent in 2011, reaching 220-222 M mt nutrients, with increases of about 3 percent for nitrogen and phosphate products and up to 5 percent for potash.
IFA estimates that construction of a new potash complex, including an underground mine, mill, and infrastructure, could cost between US$2 and US$3 billion for a capacity of 2 million mt. A new ammonia/urea complex with a capacity of 1.2 million mt urea could be completed in 36 to 40 months, at a cost ranging from US$1.2 to US$1.5 billion. A 3 million mt phosphate rock mine in Peru was recently completed after three years, at a total cost of US$450 million.