Strong agricultural markets expected to support fertilizer demand
Global demand for grain and oilseeds is projected to increase by more than 2 percent in the 2012/13 crop year, driven by population growth and the ongoing expansion of developing economies. We anticipate that rising demand will continue to pressure world grain inventories, already well below historical levels.
While global macroeconomic concerns are expected to continue in 2012 and could result in crop price volatility, we project that underlying tight supply/demand fundamentals will support pricing above historical average levels. This environment is expected to encourage farmers around the world to apply the nutrients required to maximize production, driving increased fertilizer consumption. The International Fertilizer Industry Association (IFA) projects that world fertilizer use will increase by 2.3 percent in 2012, with potash rising by more than 3 percent.
Growth in major offshore markets expected to push potash demand to record levels
Potash customers are expected to purchase cautiously early in 2012 but we anticipate shipments will accelerate as the year progresses, to meet strong projected consumption. We estimate that global demand will rise from approximately 55 million tonnes in 2011 to 55-58 million tonnes in 2012.
We anticipate that Latin American demand could exceed the 2011 record, supported by strong crop economics and increased acreage for key crops such as soybeans, sugar cane and corn. China is expected to increase its potash purchases in 2012 to stimulate yields in order to meet its rising crop requirements. India’s demand is unlikely to materially exceed 2011 levels due to uncertainty around its government subsidy levels and higher retail potash prices. Demand from other Asian markets is expected to be similar to the record volumes purchased in 2011. Shipments to North American customers are projected to exceed those of the previous year as growers increase acreage of important consuming crops such as corn.
Limited new capacity is likely to become operational in 2012, and we believe global potash operating rates may approach historical highs later in the year.
Balanced to tight markets anticipated for phosphate
Limited new phosphate capacity is expected to come on line in 2012 beyond the ongoing ramp-up of the Ma’aden facility in Saudi Arabia. China’s total phosphate exports are expected to decline from the 2011 record as the government adjusts export tax policies in an attempt to keep more resources in the country. With phosphate fertilizer consumption forecast to grow at 3 percent, we anticipate balanced to tight phosphate markets in 2012.
Global rock prices are expected to remain well above historical levels. Prices for sulfur and ammonia inputs are expected to soften from levels established in the second half of 2011.
US nitrogen producers expected to benefit from lower gas prices
Global nitrogen fertilizer consumption is expected to rise by approximately 2 percent in 2012, driven by strong agricultural fundamentals and relatively stable industrial consumption. New export-oriented capacity is anticipated to come on line in the second half of 2012 in North Africa and the Middle East, potentially leading to some softening in markets later in the year.
Natural gas prices for producers in Europe, Ukraine and China are expected to be well above historical average levels. US nitrogen producers are expected to maintain their favorable cost position relative to suppliers in those countries.