Phosphate Industry Outlooky

Andy JungBritish Sulphur Consultants

November 2008

LONDON | MINNEAPOLIS | RALEIGH | WASHINGTON | SINGAPORE | BEIJING

November 2008

31 Mount Pleasant, London WC1X 0AD UK Tel +44 20 7903 2133 Fax +44 20 7833 4973

www.crugroup.comwww.britishsulphur.com

Presentation Agenda

World Macro and Agricultural Forecasts• World Macro and Agricultural Forecasts

• World Phosphate Outlook– Phosphate FertilizersPhosphate Fertilizers

– Phosphate Rock

– Phosphoric Acid

– Price Trend

Presentation Agenda

World Macro and Agricultural Forecasts• World Macro and Agricultural Forecasts

• World Phosphate Outlook– Phosphate FertilizersPhosphate Fertilizers

– Phosphate Rock

– Phosphoric Acid

– Price Trend

Demand Drivers: Increased population and incomes, especially in developing economies, leads to higher food and fertilizer demand9 9

Population (billions)

• Population growth rates continue very gradual slowdown, from historical levels of 1 5% to

6

7

8

6

7

8p ( )

GDP per Capita ('000s 2000 US$)

Population Forecast

GDP per Capita Forecast

historical levels of 1.5% toforecast levels of 1%

• Income growth is increasing at a f t th hi t i ll

4

5

6

4

5

6 faster pace than historically, particularly as large Asian populations are pushing on with rapid economic development. Gl b l GDP/ i ill

2

3

2

3Global GDP/capita will grow at over 2% p.a.

• When regional and country mix is

0

1

1980 1985 1990 1995 2000 2005 2010 20150

1When regional and country mix istaken into account overallunderlying fertilizer growth of at least 2% p.a.

Demand Drivers: Emerging markets importance increasing at an accelerating rate

90% share of global GDP

70

80

90

40

50

60 Developed

20

30

40 Emerging

0

10

1972 1977 1982 1987 1992 1997 2002 2007

Demand Drivers: Arable Land per Capita continues to fall

– While Arable Land is expected to continue rising, albeit slowly,

0 3

0.40

0.45

r per

son

g yarable land per person will continue to fall

0.25

0.30

0.35

ble

Land

per

– This will necessitate increased productivity per unit of land

0.10

0.15

0.20ar

es o

f Ara

b

0.00

0.05

1963 1973 1983 1993 2003

Hec

ta

Source: FAO, UN

Demand Drivers: Grain Stocks have fallen to historically low levels

– Global economic growth, while expected to slow considerably in the West is forecast to rebound and remain relatively strong (particularlyWest, is forecast to rebound and remain relatively strong (particularlyin developing economies), thus:

– keeping grain stocks low– despite expectations for strong improvement in grain productiondespite expectations for strong improvement in grain production

20

2511 weeks

10

15 13 weeksGlobal Grain stocks in weeks consumption

0

5

1990 '92 '94 '96 '98 2000 '02 '04 '06 '08

SurplusSqueeze

1990 '92 '94 '96 '98 2000 '02 '04 '06 '08Source: FAO, USDA, British Sulphur

Demand Drivers: Low Stocks mean high prices, at least they did until mid-2008

– Global economic growth, while expected to slow, is forecast to remain relatively strong (particularly in developing economies) thus:relatively strong (particularly in developing economies), thus:

– keeping grain stocks low, and – keeping crop prices high

– Uncertainty in the market, particularly as it pertains to global economic growth and thus food demand, has led to a sharp drop in pricessharp drop in pricesover the past few months

Source: USDA, BSC

Phosphate Fertilizer Price Increases Have Vastly Outpaced the Rise in Grain Prices Vastly Outpaced the Rise in Grain Prices

What occurred with regard to phosphate prices during 2007/2008 was for all p gpractical purposes an exercise in creating demand destruction

Demand Destruction: Fertilizer price increases have pushed farmer costs past break-even

*at current prices/application rates/yieldsSource: USDA British Sulphur

*does not include capital recovery (approx. $0.50)Source: USDA, British Sulphur

Macroeconomic Overview:

• Impact of credit crunch takes on a whole new dynamic as

confidence plummetsconfidence plummets.

• USA in recession, and will likely drag down the global economy.

• Rest of world slowing, as expected, but emergers not much (yet).

• Policy response may exacerbate inflation:• Policy response may exacerbate inflation:

– Rapid policy easing adding fuel to the fire

• Remedy will mean slower growth beyond post credit-crunch

recovery.

Demand Drivers: Economic Forecast

Source: CRU, Consensus forecasts, British Sulphur

Presentation Agenda

World Macro and Agricultural Forecasts• World Macro and Agricultural Forecasts

• World Phosphate Outlook– Phosphate FertilizersPhosphate Fertilizers

– Phosphate Rock

– Phosphoric Acid

– Price Trend

World Phosphate Fertilizer Demand Outlook

• Essentially, there was the proverbial ‘perfect storm’ of conditions pushing phosphate prices higher– Relatively low carryover stocks in 2006

– Depreciation of the US$

P d ft dit i d i i iti ll b f d t l– Pumped up soft commodity prices – driven initially by fundamentals,followed by speculation

– Restriction of Chinese exports of DAP/MAP and rock

– Feedback loop whereby higher downstream prices promoted higher raw material prices and vice versa

• It was never likely that this confluence of factors was sustainable over the medium to longer term

Phosphate Prices Moved Substantially Higher in early 2008: Primary driver was strong demand

– Some of theSome of theprice spike in 2007 and 2008 was the result f hi hof higher raw

material costs

Depreciation of– Depreciation ofUS$ also contributed

– Limitations on Chineseexports as well

World Phosphate Fertilizer Demand Outlook

• All world regions forecast to have steady or higher demand going forward, following a rebound from the current economic downturn – growth will be led by Brazil and Asia.

Growth in ethanol/biofuels particularly in the US and EU is• Growth in ethanol/biofuels, particularly in the US and EU isexpected to promote demand there, though modestly.

• Overall, global phosphate demand growing at 2.1% per year over the medium term, slowing down over the long-term with improved technology/efficiency.gy y

Presentation Agenda

World Macro and Agricultural Forecasts• World Macro and Agricultural Forecasts

• World Phosphate Outlook– Phosphate FertilizersPhosphate Fertilizers

– Phosphate Rock

– Phosphoric Acid

– Price Trend

Phosphate Rock Price Driver: High Industry Concentration has helped to enable prices to movehigher

– We believe there has b f d t lbeen a fundamentalupward shift in the value of phosphate resources and hence phosphate

70%

80%

port

s

Top five exporters = 76% of global trade

and hence phosphatefertilizers.

– This is partly a 40%

50%

60%

bal r

ock

exp

p yfunction of high concentration in the phosphate rock / phosphoric acid

20%

30%sh

are

of g

lo

phosphoric acidindustries, particularly in the export markets. 0%

10%

OCP,Morocco

JPMC,Jordan

Gecopham,Syria

Ferphos,Algeria

Phosagro,Russia

s

World Phosphate Rock Supply Outlook to 2012

Morocco:Announced plans of 10 million t expanded

Finland:450,000 t phased expansion by 2011 (e)

FSU:Speculative 4.5 million t new mine in Kazakhstan by 2012/13 (d)

(e) = export(d) = domestic processing

China:

million t expandedcapacity by 2012/13 –we project 6 million t (d,e)

Tunisia:New 1 million t/y mine byMexico:

Over 2 million t new mining and expansions in Russia by 2012 (d)

China:Approx. 16 million t new/expanded capacity by 2012/13 (d)

Egypt:Up to 2 5

y y2010 (d)

Algeria:Speculative 1.5 million t new capacity by 2012 (intends 20 million by 2020) (d )

Saudi Arabia:5 million t Per

Mexico:Restart of 2 million t/y mine in 2008 (d)

Up to 2.5million t new capacity by 2012/13 (e,d)

2020) (d,e) Ma’aden project by 2012 (d)

Peru:Phased Vale 3.9 million t/y mine by 2013 (e) Australia:

Up to 5 million t new capacity possible, but we expect more modest gain

Brazil (d):Up to 4.5 million t new and expanded capacity by 2012/13 - Copebras – 1 million t (Catalao)- Bunge / Yara – 0.5 million t (Anitopolis)- Fosfertil – 1 million t (Tapira)

F f til 2 illi t (S lit )

expect more modest gain(e)

- Fosfertil – 2 million t (Salitre)

Forecast Phosphate Rock Supply/Demand B l th b tt li i th t it i Balance: the bottom line is that new capacity isexpected to exceed new demand

Presentation Agenda

World Macro and Agricultural Forecasts• World Macro and Agricultural Forecasts

• World Phosphate Outlook– Phosphate FertilizersPhosphate Fertilizers

– Phosphate Rock

– Phosphoric Acid

– Price Trend

Main Phosphoric Acid Expansions to 2012Morocco:1. 375,000 t j-v plant with Bunge – 20082. Speculative 375,000 t OCP plant in 2011

Tunisia:

FSU:Speculative

China:

Tunisia:330,000 t GCT j-v plant in 2009

Algeria:Speculative 330,000 t capacity by Ferphos by Iran:

S l ti 250 000

p750,000 t capacity by 2012 – likely to be delayed

China:At least 2 million t new capacity by 2012

Egypt:Speculative

capac ty by e p os by2011

Saudi Arabia:1.4 million t

Speculative 250,000t plant in 2010

Mexico:500,000 t restart of Speculative

150,000 t/y plant by 2013

Ma’aden project in 2011/12; additional 600k t possible by 2015

Jordan:330 000 t/ j

Venezuela:Speculative 189,000 t plant/expansion in 2010

restart ofFertinal plant in 2008

330,000 t/y jvproject in 2012Brazil:

1. 230,000 t Fosfertil expansion at Uberaba in 20112. New 150,000 t Bunge plant - 20093. Up to 240,000 t Copebras expansion by 2010/114. Speculative Fosfertil 375,000 t Salitre plant in 2013

Forecast Phosphoric Acid Supply/Demand B l ith h h t k it i Balance: as with phosphate rock, new capacity isexpected to exceed new demand

Supply/Demand Balance Summary

• Firm new phosphate rock capacity is expected to exceed demand growth, and there remains a risk that g ,an oversupply situation could occur, particularly if North African producers meet stated expansion intentionsintentions.

Fi h h i id it h ld t• Firm new phosphoric acid capacity should meet or exceed demand growth.

• These developments have put downward pressure on pricingon pricing.

Presentation Agenda

World Macro and Agricultural Forecasts• World Macro and Agricultural Forecasts

• World Phosphate Outlook– Phosphate FertilizersPhosphate Fertilizers

– Phosphate Rock

– Phosphoric Acid

– Price Trend

Phosphates Price Outlook

• Prices are trending downward – now it is just a matter of whether prices ease gradually or crash

• All of the recent Positive Drivers now have significant caveats:– Strong global demand, but demand destruction has finally shown itself

Hi h it tili ti (lik l t li it i 2008 2012 h ld– High capacity utilization (likely to slip as new capacity in 2008-2012 shouldease the supply crunch)

– Historically high input costs are trending lower

– Tight crop stocks (expectations for increase in planted area with conservation land being put back into production in the US and EU, as well as new land in Brazil and FSU; forecast for a strong harvest this year; easing off of demand growth due to global economic slowdown)g g )

– Increased industry concentration in the rock export market remains, though will diminish with new projects

Phosphate Industry Outlookp y

THANK YOUAndy Jung

British Sulphur ConsultantsNovember 2008

LONDON | MINNEAPOLIS | RALEIGH | WASHINGTON | SINGAPORE | BEIJING

November 2008

31 Mount Pleasant, London WC1X 0AD UK Tel +44 20 7903 2133 Fax +44 20 7833 4973

www.crugroup.comwww.britishsulphur.com