Strengths
- Significant high-quality, low-cost phosphate rock reserves
- Ability to direct rock with low levels of impurities to diversified product line to optimize margins
- Mining near processing facilities provides cost advantage over North American competitors
- Access to lower-cost North American liquid sulfur
- Strong position in North American purified acid and feed phosphate markets
Weaknesses
- Transporting ammonia to solid fertilizer plants is becoming more difficult and costly
- Higher sulfur and ammonia costs can negatively impact margins
- Plants with high fixed costs may not perform profitably at lower operating rates
- Long-term sales contracts for industrial and some liquid fertilizer products can cause a lag in pricing in times of rising input costs, temporarily impacting margins
Opportunities
- Tight phosphate rock, phosphoric acid and solid fertilizer supply/demand fundamentals
- Few companies globally with rock of sufficient quality to economically produce purified acid
- We believe that fewer greenfield projects gives at least a three-year window on solid fertilizer supply until Saudi Arabia's Ma'aden project comes on stream
Threats
- Significant government control in global phosphate supply and consumption decisions
- High barriers to exit because of significant environmental restoration and remediation costs
- Extensive environmental and permitting requirements
PotashCorp – Flexibility of Production
The World of Phosphate and Our Place in It
PotashCorp is a diversified and flexible global phosphate producer, with integrated world-class operations in North Carolina and Florida. Our high-quality phosphate rock enables us to optimize our phosphoric acid to provide the most profitable combination of downstream products – liquid and solid fertilizers, feed supplements for livestock and poultry, and products used by industry.
Strong Phosphate Companies Start with Good Rock
Global Phosphate Rock Deposits
Phosphate rock deposits are not rare. Production takes place in approximately 30 countries. China, the US and Morocco are the largest producing countries, with a total of 68 percent of global production. Morocco alone accounts for almost half of world phosphate rock exports.
Dramatic Turnaround in 2007
The global phosphate industry was transformed in 2007. For decades, Morocco's Office Cherifien des Phosphates (OCP) produced and exported rock at low prices to companies that upgraded it to produce more valuable downstream products. In 2007, new OCP management recognized the value of its rock and instituted a market-oriented approach in an already tight global market. It raised spot prices for rock by more than 300 percent, which impacted prices for all downstream products and increased the value of rock reserves everywhere.
Price Push from Sulfur
A stable, consistent and economical supply of sulfur – a byproduct of oil and gas production – is crucial for converting phosphate rock into an intermediate phosphoric acid product that can be sold or processed further. Supply became short in 2007, particularly in the international market, and prices quadrupled in many markets.
Record rock and sulfur costs are particularly painful for the almost 10 percent of global phosphate producers that import both to make phosphoric acid and solid fertilizers.
Limited New Solid Fertilizer Capacity
Other than China, which is building mainly for domestic consumption, new solid fertilizer capacity is expected to be limited until Saudi Arabia's 3-million-tonne Ma'aden facility is operational. Morocco plans to bring on phosphoric acid plant expansions in 2008 and 2009 that will enable it to increase DAP production, to capture more of the social and economic benefits of upgrading its rock. Until Ma'aden begins producing in 2011 or 2012, global demand is expected to exceed this new Moroccan capacity, keeping markets tight.
PotashCorp: Specializing in Diversity
We Begin with Quality Phosphate Rock
PotashCorp has abundant and accessible phosphate rock with low levels of impurities, which results in low production costs. Because of this high-quality rock, we can allocate about 40 percent of our phosphoric acid to high-margin industrial and feed products outside the more volatile fertilizer commodity cycle. At the same time, we are well balanced with exposure to the strong and rising profitability of liquid and solid fertilizers.
Industry Demands Purified Phosphoric Acid
Wet process technology and Aurora's superior rock have made us a significant player in this business. Global demand for industrial phosphate products is rising, and closure of several energy-intensive thermal plants by competitors has restructured US production.
Feed Supplements for Animals and Poultry
We are one of only a few producers of dical and monocal phosphate animal feed supplements, used primarily in beef and pork production. Aurora's quality rock also gives us a competitive edge in producing DFP for poultry. Although the current fertilizer market is attractive, we continue to be a major player in this high-margin feed business. US feed consumption is stable, and rising global demand for meat, combined with higher prices in a tight global market for phosphoric acid, makes the current feed environment and longer-term outlook favorable.
Phosphate Sales and Logistics
Approximately 70 percent of our phosphate sales are focused on North America, where we typically benefit from higher realized prices. Sales are made on both a spot and contract basis, depending on the product, and include freight. PCS Sales handles this North American business. PhosChem, a US marketing association that includes Mosaic, sells our phosphate fertilizers offshore.
Global and North American Competitors
OCP is our major offshore competitor, while we compete in North America with Mosaic, CF Industries, Mississippi Phosphate, Agrifos and Agrium. Moroccan and Israeli imports vie with us for North American industrial sales while producers in China compete for feed sales.
