Fertilizer industry handbook Feb 2014

Yara Fertilizer Industry Handbook February 2014

IR – Date: February 2014

1

List of contents

Fertilizer industry overview – What is fertilizer? p. 2

– The fertilizer industry p. 16

Fertilizer industry dynamics p. 26

– Ammonia p. 28

– Urea p. 33

Industry value drivers p. 39

– Drivers of demand p. 42

– Drivers of supply p. 60

– Price relations p. 67

– Production economics p. 74

Industrial applications p. 80

What is fertilizer?


3

Plants need nutrients to grow

Nutrient behavior

Nutrients have specific

and essential functions in plant

metabolisms

They cannot replace each

other, and lack of any one

nutrient limits crop growth

YIELD

Pota

ssiu

m

Phosphoru

s

Calc

ium

Soil conditions

& other growth

factors


4

What is fertilizer?

Nitrogen is the main driver of yield


5

Why mineral fertilizer ?

Mineral fertilizers are necessary to replace those nutrients that have been removed from the field

N Organic

substance, humus

Crop residues are decomposed to minerals

Mineralisation

• Export of nutrients with the harvest

• Growing demand

for food & feed

Supply of crop residues

and organic fertilizer

P K

S …

Mg

NPK


6

61%

23%

16%

Nitrogen – the most important nutrient

Total 176 million

tons nutrients

Nutrient characteristics Primary

benefit Application Industry structure

Improve

crop quality

Increase crop

size

Most important

and commonly

lacking nutrient

Annual

application

not always

done

Annual

application

critical

Fewer suppliers,

production

discipline

Industry more

fragmented,

under

consolidation

More dynamic

prices, but stable

volume

Potassium

(K)

Phosphorus

(P)

Nitrogen

(N)

Source: IFA (season 2012/13 estimate, May 2013)


7

Profitability of investment in mineral fertilizers

The investment in nitrogen fertilizer

is highly profitable for growers

Fertilizer investment: 248 USD/ha

Net return: 1,711 USD/ha

Net return > 7 x investment

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

0

500

1,000

1,500

2,000

2,500

3,000

0 50 100 150 200 250 300

Yield, ton/ha

Income USD/ha

Fertilizer application, kg N/ha

Source: Winter wheat yield data: Long term trial, Broadbalk, Rothamsted (since 1856).

Yield response (monetary value) to N fertilizer rate


8

Seed 15 %

Fertilizer 24 %

Chemicals 4 %

Labour 4 %

Power & Machinery 24 %

Land 22 %

Other 7 %

Breakdown grain production costs

Source: USDA (Cost-of-production forecasts May 2013)

Example: 2013F average US corn production costs

2000 2002 2004 2006 2008 2010 2012 2014F

0%

5%

10%

15%

20%

25%

30%

Fertilizers as part of US corn production costs


9

Nitrate is the most important fertilizer in Europe

Nitrate (NO3-) Ammonium (NH4

+)

Ammonium-N is fixed onto

clay minerals in the soil and

therefore immobile. The plant

roots have to grow actively

towards the nutrient.

Nitrate-N is always dissolved

in the soil water and is

transported passively together

with the water into the plant

root. Thus, nitrate is rapidly

effective.

Urea (CON2H4)

Urea-N needs to be

converted into ammonium-

N before it is plant

available.

Nitrates vs. urea


10

0

25

50

75

100

AN Urea UAN

Nitrate-based fertilizers are superior to urea both

agronomical and environmentally

The agronomical efficiency of nitrates is superior to urea

The carbon footprint is lower than for Urea

Source: DEFRA (2006), NT26 project report; Fertilizer Europe; 2EMEP/EEA air pollutant emission inventory guidebook (2007); Yara

Nitrogen recovery (% of AN)

Urea requires up to 20% higher N application to achieve same cereal crop yield and quality as AN

Lifecycle carbon footprint (kg CO2 eq/kg N)

0

4

8

12

AN Urea

Although urea is more CO2 efficient in production, CO2 emissions and ammonia volatilization on application

more than offset for this


11

Trial results in arable crops

8.2

8.4

8.6

8.8

9.0

Urea UAN CAN CN

Grain yield (t/ha)

Winter wheat trials in UK from 1994-98 Application rate of 160 kg of N/ha

Source: Levington Agriculture, UK (1999)


12

100

1,016

0

200

400

600

800

1,000

1,200

Wheat/UK Oranges/Brazil

Index

Increase in crop production value using nitrates instead of urea

Nitrates’ agronomic advantage has higher value

for cash crops than for commodity crops

(160 kg N/ha) (180 kg N/ha)

1,553

3,192

0

500

1,000

1,500

2,000

2,500

3,000

3,500

Wheat/UK Oranges/Brazil

€/ha

Crop value with nitrates


13

Fertilizer characteristics:

Organic compared to mineral fertilizer

Characteristics Organic fertilizer Mineral fertilizer

Nutrient

source

Crop residues and animal

manures

Nitrogen from the air and minerals

from the soil

Nutrient

concentration Low concentration High concentration

Nutrient

availability Variable Immediately available for the crop

Quality Often inconsistent Traceable and consistent


14

Organic farming represents only a marginal

share of total cultivated land

0.0%

0.1%

0.2%

0.3%

0.4%

0.5%

0.6%

0.7%

0.8%

0.9%

-

5

10

15

20

25

30

35

40

2005 2006 2007 2008 2009 2010 2011

Ha, billions Share of cultivated land

Source: Organic-world.net

33%

29%

18%

10%

7%

3%

Oceania

Europe

Latin America

Asia

North America

Africa


15

Fertilizer production routes

Ammonia plant

Nitric acid plant

Nitrophosphate plant

NH3

CO2

Urea

Phosphoric acid plant

Sulphuric acid plant

Natural gas Air

Air

Rock

HNO3

Rock

Salts of K, Mg, S

Rock

Ammonium nitrate

Calcium nitrate

NPK fertilizers

H2PO4 H2SO4

DAP / MAP

Rock

Triple Super Phosphate

The fertilizer industry


17

Consumption per nutrient

0

20

40

60

80

100

120

140

1976 1980 1984 1988 1992 1996 2000 2004 2008 2012 2016F

Million tons nutrient

N 1.4% growth pa.

1.7% growth pa. P

K 2,8% growth pa.

Source: IFA, June 2013


18

Nitrogen consumption in key regions

0

5

10

15

20

25

30

35

40

1999 2001 2003 2005 2007 2009 2011 2013F 2015F 2017F

Million tons nitrogen

China: 0.4% *

Europe: 1.6% *

North America: 0.0% *

Latin America: 3.6% *

Rest of Asia: 2.3% *

Source: IFA, June 2013 * CAGR 12-17


19

Urea 56 %

UAN 5 %

AN/CAN 8 %

NPK 8 %

DAP/MAP 7 %

Ammonia 4 %

Other 12 %

MOP/SOP 72 %

NPK 26 %

Other 2 %

DAP/MAP 56 %

NPK 20 %

SSP 10 %

TSP 6 %

Other 9 %

Key global fertilizer products

108 million tons*

29 million tons 41 million tons

Nitrogen N

Potash K2O Phosphate P2O5

Source: IFA 2012 (nutrient totals) and 2011 (product split) * Does not include industrial nitrogen applications


20

Nitrogen fertilizer demand – 5 key markets

Source: IFA 2011

China (33.8 mt)

India (17.4 mt)

West /central Europe (10.3 mt)

Brazil (3.6 mt)

USA (12.1 mt)

Urea 78%

NPK 3%

DAP/MAP 18%

Other 1 %

Urea 67%

ABC 17%

NPK 5%

DAP/MAP 9%

Other 2%

Urea 51%

Nitrates 17%

NPK 8%

DAP/MAP 11%

AS 12%

Urea 22%

Ammonia 27 %

Nitrates 2%

UAN 27%

NPK 8%

DAP/MAP 6%

Other 8% Urea

18%

Nitrates 43%

UAN 11%

NPK 16%

DAP/MAP 2%

Other 9%


21

Wheat 16%

Rice 14%

Maize 16%

Other cereal 5%

Oilseeds 11%

Cotton 4%

Sugar crops 4%

Fruit & veg 15%

Other 12%

Nutrient application by crop

Source: IFA (2010/11)

N + P + K NITROGEN

Wheat 18 %

Rice 15 %

Maize 17 %

Other cereal 5 %

Oilseeds 7 %

Roots/Tubers 3 %

Cotton 4 %

Sugar crops 4 %

Fruit & veg 15 %

Other 12 %


22

Wheat 24%

Rice 30%

Oilseeds 8%

Cotton 9%

Fruits & vegtables

6%

Other 24%

Nitrogen application by crop

Source: IFA 2010/11

Russia

India

EU-27

Brazil

USA

Wheat 48%

Other cereals

14%

Sugar crops 8%

Maize 7%

Oilseeds 2%

Other 21%

Maize 49%

Wheat 13%

Fruits & vegtables

2%

Other cereals

3%

Other 33%

Wheat 28%

Maize 13% Other

cereals 15%

Oilseeds 10%

Fruits & vegtables

7%

Other 27%

China

Fruits & vegtables

30%

Rice 15% Maize

15%

Wheat 14%

Oilseeds 6%

Cotton 3%

Wheat 16%

Maize 25%

Sugar crops 22%

Cotton 4%

Fruits & vegtables

10%

Rice 5%

Other 30%


23

Source: Thomson Worldscope

Fertilizer company comparison

0 2 4 6 8 10 12 14 16 18

CF

ICL

K+S

PCS

Mosaic*

Agrium

Yara

L4Q 2012

Revenues - USD billion

* 12 months ending May 2013


24

Yara – the leader in nitrogen fertilizers

* Incl. companies’ shares of JVs

Source: Yara & Fertecon Source: Fertilizer Europe Source: Fertilizer Europe

0

1

2

3

4

5

6

7

8

9

Yara CF GDF Agrium PCS

0

1

2

3

4

5

6

7

8

Yara* Euroc. Acron ZAT Rossosh

0

1

2

3

4

5

6

7

Yara Euroc. GDF Acron Agrofert

Production capacity* (mill t)

Global no 1 in ammonia Global no 1 in nitrates Global no 1 in NPK complex fertilizer

Production capacity* (mill t) Production capacity* (mill t)

Excluding China


25

Yara – the European cost leader

Ammonia cost position Nitrate cost position

Production cost index: 100 = European FE average excl. Yara

Index Index

50

60

70

80

90

100

110

200

1

200

2

200

3

200

4

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

50

60

70

80

90

100

110

200

1

200

2

200

3

200

4

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

Average cost Yara’s European plants European average (excl. Yara)

Source: Fertilizer Europe

Fertilizer industry dynamics


27

Potential industry concerns

and associated mitigants

Weaknesses and risks Mitigating factors

Over-investment at the top

of the cycle

Rising construction costs and lead times, reduced state

ownership

Weak players/lack of focus Spin-offs from chemical/energy companies followed by

consolidation

High cost of natural gas in Europe Long-term trend of gas price convergence between

regions, as pipeline and LNG investments increase liquidity

International trade restrictions WTO accession

Regulatory regimes Operational excellence

Terrorism, accidents, country, customer

and currency risk

Increased management awareness

of risk and better risk management

Ammonia


29

Ammonia production

60

80

100

120

140

160

180

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Million tons

Total production

Source: IFA

2002-2012 trend growth rate = 2.3%/year

0

10

20

30

40

50

60

Ch

ina

Ru

ssia

Ind

ia

US

A

Ind

on

esia

Trin

idad

Ukra

ine

Ca

nad

a

Sa

udi A

rab

ia

Eg

yp

t

Million tons

10 largest producers


30

Most of the ammonia produced is upgraded to

urea or other fertilizers

139

32

0

20

40

60

80

100

120

140

160

Fertilizer Industrial use

Million tons Ammonia use

Urea Nitrates DAP/MAP

NPK Other N Direct application

TotalSource: Fertecon

0

5

10

15

20

25

02 03 04 05 06 07 08 09 10 11 12

Million tons Ammonia trade

Total world trade

Yara trade

Source: Yara, IFA


31

Global ammonia trade in 2012

Source: IFA

4.5

3.2

1.6

1.2 1.2 1.0

0.8 0.7 0.7 0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

Trin

idad

Ru

ssia

Sa

udi A

rab

ia

Ukra

ine

Ca

nad

a

Ind

on

esia

Alg

eria

Eg

yp

t

Qata

r

Ira

n

Million tons

10 largest exporters

6.2

1.8

1.2

0.8 0.8 0.7 0.7 0.6 0.4 0.4

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

US

A

Ind

ia

Ko

rea

Mo

rocco

Fra

nce

Be

lgiu

m

Ta

iwa

n

Tu

rke

y

Germ

an

y

Sp

ain

Million tons 10 largest importers


32

Main ammonia trade flows 2012

1.9

0.9 0.8 0.6

1.2

3.8

1.0

0.8 3.1

1.3

Million tonnes

0.4

Source: IFA


34

Urea production in 2012

Source: IFA

22.5

6.9 6.5 6.2 4.6 4.4 4.2 4.1 3.8

0

10

20

30

40

50

60

Ch

ina

Ind

ia

Ind

on

esia

Ru

ssia

US

A

Qata

r

Eg

yp

t

Pa

kis

tan

Ira

n

Ca

nad

a

Million tons

10 largest producers

2002-2012 trend growth rate = 3.5% p.a.

60

80

100

120

140

160

180

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Million tons

Total production


35

Global urea trade in 2012

Source: IFA

6.9

4.8

4.2

3.6

3.1 3.1 2.9

2.2

1.4

1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

Ch

ina

Ru

ssia

Qata

r

Ukra

ine

Om

an

Sa

udi A

rab

ia

Ira

n

Eg

yp

t

Ca

nad

a

Ind

on

esia

Million tons

10 largest exporters

8.0

7.1

3.0

2.3 1.8

1.5 1.4 1.1

0.9 0.8

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

Ind

ia

US

A

Bra

zil

Th

aila

nd

Me

xic

o

Au

str

alia

Tu

rke

y

Pa

kis

tan

Italy

Fra

nce

Million tons

10 largest importers


36

Main urea trade flows 2012

1.4

9.3 1.1

0.5 4.0

3.7 1.6 1.4

1.4

1.3

1.4

Source: IFA

Million tonnes

1.4

0.9

4.0

0.6

1.7


37

Short-term urea balance impacted by Chinese

export taxes

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

Kilotons

Source: BOABC

2008

0 %

20 %

40 %

60 %

80 %

100 %

120 %

0

100

200

300

400

500

600

USD per ton Export tax

2011

2010

Accumulated urea exports Urea price and export tax

2012

2009

* Export tax during low tariff period depends on price level with 40 yuan/t (~2%) representing the minimum tax level

2013


38

Chinese domestic urea price and export tax set

the export floor price

Source: China Fertilizer Market Week

1,200

1,400

1,600

1,800

2,000

2,200

2,400

2,600

RMB/t

Chinese domestic urea price

Industry value drivers


40

Key value drivers

7.1 6.7

6.4 6.4 5.9 5.6

6.3 6.0 5.6 5.7 5.9

0

2

4

6

8

03 04 05 06 07 08 09 10 11 12 13

NOK/USD exchange rate

185 229 240 245

264

525

240

357

516 545

477

0

100

200

300

400

500

600

03 04 05 06 07 08 09 10 11 12 13

Ammonia fob Black Sea (USD/t)

139 175

220 223

308

499

249 289

423 407

341

0

100

200

300

400

500

600

03 04 05 06 07 08 09 10 11 12 13

Urea prilled fob Black Sea (USD/t)

143 164

187 214

244

466

240 261

379

337 316

0

100

200

300

400

500

03 04 05 06 07 08 09 10 11 12 13

CAN cif Germany (USD/t)

5.5 5.9

8.9

6.7 7.0

8.9

4.0 4.4 4.1

2.8

3.7

0

1

2

3

4

5

6

7

8

9

10

03 04 05 06 07 08 09 10 11 12 13

Henry Hub (USD/MMBtu)

28

38

54

65 73

97

62

80

104 105 104

0

20

40

60

80

100

120

03 04 05 06 07 08 09 10 11 12 13

Oil Brent blend spot (USD/bbl)

Average prices 2003 - 2013 Source: The Market, Fertecon, CERA, World Bank, Norges Bank


41

Supply-driven price for urea

Urea demand

Urea supply

Urea price (above floor)

Most other nitrogen fertilizer prices

Value-added margins

Nitrogen fertilizer value drivers

European / Ukrainian gas prices and Chinese coal prices Grain inventories/prices New urea capacity vs. closures Global urea demand vs. supply Urea price Market segmentation

Drivers Effect on

Gas cost in Europe

Fixed cost

Unit cost

Oil product prices and LNG

development

Manning and maintenance

Productivity and economies

of scale

Revenue drivers

Cost drivers

Drivers of demand


43

Drivers of nitrogen consumption growth

Fertilizer consumption

– Population growth

– Economic growth (improved diets)

– More meat consumption in developing

countries

– More protein-rich diets

– More fruit and vegetables

– Reduce hunger

– Biofuels

Industrial consumption

– Economic growth

– Environmental limits (e.g. reduction of NOx

emissions)


44

0

2

4

6

8

10

12

0

500

1,000

1,500

2,000

2,500

65 70 75 80 85 90 95 00 05 10 15E 20E 25E 30E 35E 40E 45E 50E

Billions Million tons

Population less developed regions Population more developed regions Grain consumption

Grain consumption growth stronger than

population growth

Source: US Department of Agriculture, United Nations

4% drop in production, low stocks, demand rationing and spiking prices

3% drop in production 3% drop in production, low stocks, demand rationing and spiking prices

US drought resulting in 3.5% drop in production, low stocks, demand rationing and spiking prices


45

240

230

160

Diet change the most important factor for growth

in food consumption

2,200 Grain eq. consumption 1998

Diet change

(same cal/cap and pop)

Increased calorie

consumption

(same pop and diet)

Population growth

(same cal/cap and diet)

2,830 Grain eq. consumption 2008

126

14

13

9

162

Fertilizer consumption for food crop**

Million tons nutrients

Impact on food consumption 1998-2008

Million tons grain equivalent*

* Assumed 500 kcal/kg grain, 600 kcal/kg meat, meat/grain production factor of 3

** N, P and K demand. Average effective yield delivered to consumers of 2 ton cereal/ha; 120 kg fertilizer/ha

Historical

CAGR of 2,5%

(1998-2008)

Source: McKinsey & Company


46

Higher meat consumption requires more feed

grain

0 20 40 60 80 100 120 140

Africa

Asia

Latin America

North America

EU

World

Kg/capita/year

Source: FAO

Significant potential for increasing meat consumption in emerging countries

0 1 2 3 4 5 6 7 8 9

Beef

Pork

Poultry

Kilograms of grain to produce 1kg of meat

Feed grain multipliers for meat production

2X

4X

7X


47

0

2

4

6

8

10

0.0

0.1

0.2

0.3

0.4

0.5

1960 1970 1980 1990 2000 2010 2020E

Popula

tion (b

illion) H

ecta

res/p

ers

on

Hectares/person Population

Increasing population and reduced land

available for food production per capita

Source: IFA, Worldmarkets.com

Very limited potential to

increase farmable land

Improved living

standards increase

protein consumption per

person, requiring more

grain for animal feed

The only solution is to

increase agricultural

productivity


48

Long-term grain price development underlines

productivity challenge

0

50

100

150

200

250

300

2002-2004=100

FAO Food price index

Food Price Index Cereals Price Index


49

260

270

280

290

300

310

320

330

340

350

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

Kg/capita

Production per capita has improved but remains

lower today than in the 80s

Source: USDA (cereal production) and UN (population)

Peak: average 1983-1986: 326 kg/capita

Average 2002-2003 289 kg/capita

Average 2009-2012 319 kg/capita


50

Source: USDA February 2014

Record 2013 crop add only 1 day of

consumption to global grain stocks

1,950

2,000

2,050

2,100

2,150

2,200

2,250

2,300

2,350

2,400

2,450

2,500

06 07 08 09 10 11 12 13E 14F

Million tons

Consumption Production

Grain consumption and production Days of consumption in stocks

55

60

65

70

75

80

85

06 07 08 09 10 11 12 13E 14F

Days


51

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

1960 1970 1980 1990 2000 2010 2020E

Tons of cereals per hectare

Source: FAO, Worldmarkets.com, Yara

1 tonne of grain requires ~25kg nitrogen

Mineral fertilizer

Organic fertilizers

Existing soil nutrients

Mineral fertilizer essential

to sustain future yield increases

Increased production of

mineral fertilizers

necessary to meet future

nutrient demand

Limited potential for

recycling organic

material

Nutrient reserves in the

soil do not increase


52

Key crops by producing

Source: USDA, 2012/13 season

United States 32%

China 24% Brazil

8%

EU-27 7%

Ukraine 3%

Other 26%

Maize-global production 840 mt

EU-27 20%

China 18%

India 14%

Russia 6%

US 10%

Other 32%

Wheat-global production 651 mt

China 31%

India 21% Indonesia

8%

Bangladesh 7%

Vietnam 6%

Other 27%

Rice-global production 464 mt

USA 35 %

Brazil 30%

Argentina 21%

China 5%

India 4%

Other 10%

Soybeans-global production 268 mt


53

Agricultural profile – key regions

Source: IFA (2011/2012 season), FAO (2011/12 season)

China

India

EU

Brazil

USA

160 mill ha

Maize (34.0)

Soybean (29.9)

Wheat (18.5)

168 kg/ha

3 kg/ha

84 kg/ha

107 mill ha

Wheat (26.1)

Barley (11.9)

Maize (8.9)

116 kg/ha

153 kg/ha 112 mill ha

Maize (33.6)

Rice (30.3)

Wheat (24.3)

149 kg/ha

166 kg/ha

185 kg/ha

72 mill ha

Soybean (24.0)

Maize (13.2)

Sugarcane (9.6)

5 kg/ha

54 kg/ha

65 kg/ha

157 mill ha

Rice (44.0)

Wheat (29.0)

Millet(10.7)

113 kg/ha

137 kg/ha

Arable land, top 3 crops area harvested and nitrogen application.

* Total nitrogen applied (kg) divided by harvested area


54

Large variations in yields across regions

Source: FAOSTAT 2012

0

1

2

3

4

5

6

7

8

9

US Argentina China Brazil Mexico

Tons/Ha

Maize yields

0

1

2

3

4

5

6

7

8

France China India US Russia

Tons/Ha Wheat yields

0

1

2

3

4

5

6

7

8

China Viet Nam Indonesia India Bangladesh

Tons/Ha Rice yields

0

1

1

2

2

3

3

Argentina US Brazil China India

Tons/Ha

Soybean yields


55

Biofuels: high-level outlook

Source: PIRA, October 2013

0

500

1,000

1,500

2,000

2,500

2005 2006 2007 2008 2009 2010 2011 2012 2013E 2014E 2015E 2020E 2025E

MB/D

Global ethanol production

FSU

Africa

Asia/Pacific

Latin America

EU-28

Canada

U.S.


56

N-fertilizer consumption from biofuels production

2.0

0.5

0.3

0.6

US - maize forethanol

Europe - rapeseedfor biodiesel

Brazil - sugarcane forethanol

Others

0.0

0.5

1.0

1.5

2.0

2.5

Million tons N

Source: IFA


57

The effect on fertilizer consumption of

genetically modified crops

Herbicide tolerance

(HT) 100

Insect resistance

(IR) 23

HT + IR 41

Cropped area by trait, Million hectares

Source: ISAAA

Soybean 81

Maize 40

Cotton 19

Rapeseed 9

Cropped area by crop, Million hectares


58

Fertilizer reduces carbon footprint from farming

Application

Nitrates better than urea

Precision farming (N-tester etc.)

Balanced fertilization (NPK)

Fertilizer - an efficient solar energy catalyst

Production marginal part of carbon footprint - efficient application more important

Huge positive effects of fertilizer use by lower land use

Production

Yara’s production more energy-efficient than competitor average

Yara developed N2O catalyst

© Yara 2010

PRODUCTION TRANSPORTATION FARMING HARVEST CONSUMPTION CAPTURE

3.6 kg CO2 eqv

0.1 kg CO2

5.6 kg CO2 eqv

75 kg CO2

75 kg CO2


59

Seasonality in fertilizer consumption

Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Corn

USA

China

Europe

Brazil, first crop

Brazil, second crop

Wheat

China (winter wheat)

China (spring wheat)

India (Rabi)

USA (winter wheat)

USA (spring wheat)

Europe (winter wheat)

FSU (winter wheat)

Rice

China (single crop)

China (early double crop)

China.(late double crop)

India (Kharif)

India (Rabi)

Planting/seeding

Harvest

Source: USDA

Drivers of supply


61

Nitrogen value chain

Nitrates

Nitric acid

Urea

Ammonia

C02

H, Ar, CO etc

Industrial nitrogen

chemicals

Environmental

products

Industrial gases

Ammonia

Industrial products

Calcium

Nitrate

Natural gas

Nitric acid

Raw material

Intermediate products

Finished products


62

Nitrogen technology developments

0

50

100

150

200

250

300

350

400

450

1910 1915 1930 1950 1960 1975 2000

GJ/tN

Birkeland-Eyde electric arc method

Cyanamid method

Haber-Bosch synthesis Steam reforming natural gas

Theoretical minimum


63

100 107

113 118 120

0

20

40

60

80

100

120

140

Energy consumption in ammonia production

China’s coal-fired

ammonia plants use 70%

more energy and emit 2.5

times more CO2

Yara

Europe

Europe

ex Yara

Russia Romania &

Bulgaria

US

Energy consumption

per ton ammonia

(relative index)

Source: Fertilizer Europe (2008)


64

Source: Fertecon urea update December 2013 (August update in brackets). Consumption data source is IFA.

Year Driving regions Urea capacity growth relative

to nitrogen capacity

Excluding China Excluding China

2013 Qatar 26%

UAE 20% 1.2% (1.4%)

2014 Iran 28%

Algeria 26% 1.5% (1.8%)

2015 Algeria 23%

Iran 12% 3.8% (3.5%)

2016 USA 38%

Nigeria 12% 2.7% (3.2%)

2017 USA 28%

Iraq 27% 1.7% (1.5%)

Gross annual addition 2013-2017 ~2.2%

Assumed annual closures ~0.5%

Net annual addition 2011-2015 ~1.8%

Trend consumption growth from 2002 2.1%

Projected nitrogen capacity additions outside

China in line with historical consumption growth


65

Business development Gas agreement

5 year typical construction time for nitrogen

fertilizer projects*

Feasibility phase

Concept selection phase

Prepare for execution

Construction Operation

4–6 years

6-12 months - check cost assumptions by approaching market - bidding for contracts and/or equipment

12-24 months depending on complexity

* Ammonia and urea plant example

30-36 months


66

Global urea capacity utilization

70%

75%

80%

85%

90%

95%

100%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013F2014F2015F2016F2017F

Urea capacity utilization

Excluding China

Source: Fertecon Aug 2013

Price relations


68

0

100

200

300

400

500

600

700

800

900

Jan 01 Jan 02 Jan 03 Jan 04 Jan 05 Jan 06 Jan 07 Jan 08 Jan 09 Jan 10 Jan 11 Jan 12 Jan 13 Jan 14

USD/tonne

Urea fob Black Sea 0.6 * Ammonia fob Black sea + 15

Upgrading margins from ammonia to urea

Source: Average of international publications


69

0

100

200

300

400

500

600

700

0

50

100

150

200

250

300

350

1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

USD/t USD/mt

Corn Urea fob Middle East

Grain prices important for fertilizer demand

Source: World Bank, Fertilizer publications


70

Only shorter periods with supply-

driven urea market

0

100

200

300

400

500

600

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E

Europe oil index Ukraine (Fertecon) US China

Urea price, fob Yuzhny

Source: Fertecon (Ukraine), Yara estimates


71

Nitrate premium is mainly a function of

crop prices and proper marketing

0

50

100

150

200

250

300

350

400

0

50

100

150

200

250

300

350

400

450

02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13

Wheat price, USD/t CAN price, USD/t

Adjusted urea* Nitrate premium, USD/t Wheat price

* Urea fob Black sea adjusted for import costs into Europe and nitrogen content similar to CAN


72

Grain/oilseed prices – yearly averages

0

2

4

6

8

10

2003 2005 2007 2009 2011 2013

USD/bu Wheat (HRW US Gulf)

0

100

200

300

400

500

600

700

2003 2005 2007 2009 2011 2013

USD/t Rice (Thailand)

0

1

2

3

4

5

6

7

8

2003 2005 2007 2009 2011 2013

USD/bu Corn (US Gulf)

Source: World Bank, Dec 2013

0

5

10

15

20

2003 2005 2007 2009 2011 2013

USD/bu Soybeans (cif Rotterdam)

Average prices 2004-2013


73

10-year fertilizer prices – monthly averages

Source: Average of international publications

0

200

400

600

800

1,000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

USD/t Ammonia fob Black Sea

0

100

200

300

400

500

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

USD/t CAN cif Germany

0

200

400

600

800

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

USD/t Urea prilled fob Black Sea

Average prices 2004 - 2013

0

200

400

600

800

1,000

1,200

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

USD/t DAP fob US Gulf

Production economics


75

7.2

62.8

0

10

20

30

40

50

60

70

80

Yara’s operating cash costs are mainly variable

Temporary plant closures can be

made speedy and with limited

stop/start costs

Example for ammonia/urea plants:

– Takes half a week to stop and a

week to start

– Cost of stopping is 2 days energy

consumption

– Cost of starting is 3 days energy

consumption

Operating cash costs 2012

NOK Billions

Variable costs (90%) - Dry raw materials - Energy - Freight - 3rd party finished fertilizer

Other cash cost (10%)


76

Ammonia (NH3)

(82% N)

Ammonia cash cost build-up – example

Gas price: 8 USD/MMBtu

x Gas consumption: 36 MMBtu/mt NH3

= Gas cost: 288 USD/mt NH3

+ Other prod. cost: 26 USD/mt NH3

= Total cash cost 314 USD/mt NH3

Source: Blue Johnson & Associates.

Typical natural gas

consumption for

ammonia production

Excel file used

for calculation:

36 MMBtu natural

gas/tonne ammonia


77

Ammonia (NH3)

(82% N)

Urea

(46% N)

Urea cash cost build-up – example

36 MMBtu natural gas/tonne ammonia

Ammonia price: 314 USD/mt NH3

x Ammonia use: 0.58 NH3/mt urea

= Ammonia cost 182 USD/mt urea

+ Process gas cost* 41 USD/mt urea

+ Other prod. cost**: 22 USD/mt urea

= Total cash cost 245 USD/mt urea

Source: Blue Johnson & Associates.

0.58 mt ammonia per tonne urea

CO

2

Excel file used

for calculation:

Same file as for

ammonia

** Including load-out

* Process gas cost is linked to natural gas price


78

* There are several NPK formulas. 15-15-15 is just an example

Theoretical consumption factors

Ammonia (82% N)

Urea (46% N)

AN (33.5% N)

CAN (27% N)

NPK (15-15-15)*

P and K


79

* P2O5 content of phosphate rock varies. This is an example.

** 1 ton of phosphoric acid requires 1 ton of sulphur.

Main phosphate processing routes

Phosphoric acid (100% P2O5)

DAP (18% N, 46% P2O5)

MAP (11% N, 52% P2O5)

TSP (46% P2O5)

Phosphate rock (72% BPL*, 33% P2O5 )

Sulphur**

Ammonia ( 82% N)

Rock production: 191

Rock exports: 31

Production: 42

Export: 4.4

Production: 33

Export: 16

Production: 21

Export: 5

Production: 6

Export: 3.8

2006 production and exports, million tons P2O5

Source: IFA

Industrial applications


81

Ammonia

Nitric acid

CN

Melamine

DIPCAL®

NITCAL®

H2S abatement in sewage

Concentrated nitric acid

Combined products

Urea

Cleaning/ scrubbing

Aqueous ammonia

Glue

AdBlue ®/heavy-duty vehicles

Stationary sources

Industrial gases

N2O abatement

Emulsions

ANFO

TAN

Nitrogen Oxygen

Argon

Propane

Formates

Dry ice

Applic. LIC

LIC wholesale

NH3

Vessels (Yarwil)

CO2

H2S abatement in oil fields

NOX abatement

Acrylonitrile

Technical nitric acid

Industrial nitrogen applications


82

Industrial use accounts for 19% of global

nitrogen consumption

~26 million tons N

19% of total N consumption

Environment 5%

Melamine 15%

Glue 64%

Other 16%

~8 million tons N as urea

10% of total urea consumption

Source: Yara estimates

Environment 3 %

Explosives 20%

Chemicals 77%


83

Source: Fertecon

Million tons N

Estimated growth of Industrial applications is 10 million tons N (3.3 % annual growth)

0

5

10

15

20

25

30

35

40

2010 2015E 2020E

Urea

Nitric Acid

Ammonia, DeNOx

Ammonia, TAN

Ammonia, P-Chem

Global demand development of nitrogen

chemicals for industrial applications is strong


84

Automotive, off and on road

Stationary

Maritime

Air1

NOxCare

Yarwil

AdBlue/DEF is a generic name for urea-based solution Air1 is Yara’s brand name for AdBlue/DEF

Nitrogen oxides emissions lead to ground ozone layer and acid rain Urea or ammonia combined with an SCR catalyst, eliminates up to 90% NOx emissions Legislation requires emission limits from mobile sources (transport fleets on land and at sea) and from industrial sources (power plants, cement factories, waste incinerators, refineries…)

Example

Urea and ammonia based solutions

to improve air quality


85

Example

Technical Nitrates for Civil Explosives

Various grades of Ammonium Nitrate and Calcium Nitrate for use in the civil

explosives and mining industries


86

Example:

CO2 has numerous industrial applications

Food additive:

High-quality CO2

for beverage carbonisation

Food care:

CO2 for greenhouses, chilling

and freezing, processing and

transport

Animal care:

Controlled atmosphere for

livestock stunning

Manufacturing:

Welding and cutting

gases

Industries Served :

Breweries

Dairies

Bakeries

Meat and Poultry processing

Fish Farming and processing

Greenhouses

Airline catering

Refrigerated transport

Blasting :

Multipurpose cleaning


87

Calcium nitrate for H2S abatment

• Hydrogen Sulphide (H2S) is a

highly toxic, odorous, and

corrosive gas formed in

wastewater systems. It

represents a significant health

risk potentially causing loss of

smell, eye irritation, rhinitis and

respiratory difficulties amongst

other symptoms

• Yara’s calcium nitrate application

is a natural biological system that

removes and prevents the

formation of H2S in sewage

systems and waste water

treatment plants

Industries Served :

Municipalities

Wastewater treatment

plants

Dairies

Pulp and paper industry

Slaughter houses

Breweries

Oil fields


88

Sources of market information

Fertilizer market information – FMB www.fmb-group.co.uk

– Fertecon www.fertecon.com

– Fertilizer Week www.cruonline.crugroup.com

– Profercy www.profercy.com

– The Market www.icispricing.com

– Green Markets (USA) www.greenmarkets.pf.com

– Beijing Orient Business (China) www.boabc.com

– China Fertilizer Market Week www.fertmarket.com

Fertilizer industry associations – International Fertilizer Industry Association (IFA) www.fertilizer.org

– Fertilizers Europe (EFMA) www.efma.org

Food and grain market information – Food and Agriculture Organization of the UN www.fao.org

– International Grain Council www.igc.org.uk

– Chicago Board of Trade www.cbot.com

– World Bank commodity prices www.worldbank.org

– US Department of Agriculture (USDA) www.usda.gov

http://www.fertilizer.org/

www.yara.com

Fertilizer industry handbook Feb 2014

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Transcript of Fertilizer industry handbook Feb 2014