potashcorp market analysis report - q1 2014
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PotashCorp.com
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March 27, 2014
Q1 2014 Market Analysis Report
This report contains forward-looking statements or forward-looking information (forward-looking statements). These statements can be identified by expressions of belief, expectation or intention, as well as those statements that are not historical fact. These statements are based on certain factors and assumptions including with respect to: foreign exchange rates, expected growth, results of operations, performance, business prospects and opportunities and effective tax rates. While the company considers these factors and assumptions to be reasonable based on information currently available, they may prove to be incorrect. Several factors could cause actual results or events to differ materially from those expressed in the forward-looking statements, including, but not limited to, the following: variations from our assumptions with respect to foreign exchange rates, expected growth, results of operations, performance, business prospects and opportunities, and effective tax rates; fluctuations in supply and demand in the fertilizer, sulfur, transportation and petrochemical markets; costs and availability of transportation and distribution for our raw materials and products, including railcars and ocean freight; changes in competitive pressures, including pricing pressures; adverse or uncertain economic conditions and changes in credit and financial markets; the results of sales contract negotiations within major markets; economic and political uncertainty around the world; timing and impact of capital expenditures; risks associated with natural gas and other hedging activities; changes in capital markets; unexpected or adverse weather conditions; changes in currency and exchange rates; unexpected geological or environmental conditions, including water inflows; imprecision in reserve estimates; adverse developments in new and pending legal proceedings or government investigations; acquisitions we may undertake; strikes or other forms of work stoppage or slowdowns; rates of return on and the risks associated with our investments; changes in, and the effects of, government policies and regulations; security risks related to our information technology systems; and earnings, exchange rates and the decisions of taxing authorities, all of which could affect our effective tax rates. Additional risks and uncertainties can be found in our Form 10-K for the fiscal year ended December 31, 2013 under the captions “Forward-Looking Statements” and “Item 1A – Risk Factors” and in our other filings with the US Securities and Exchange Commission and the Canadian provincial securities commissions. Forward-looking statements are given only as at the date of this report and the company disclaims any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
Forward-looking Statements
• Economic and Agriculture Market Overview: pages 3-11
• Fertilizer Market Overview: pages 12-21
• Market Profile – Africa, Europe and FSU: pages 22-42
Report Summary
Economic and Agriculture Market Overview
Source: IMF
20
12
20
14
F
20
13
20
15
F
20
12
20
14
F
20
13
20
15
F
20
12
20
14
F
20
13
20
15
F
20
12
20
14
F-2%
0%
2%
4%
6%
8%
10%World EU US Brazil ASEAN-5 India China
GDP Percentage Change
Improved Outlook for Many Advanced Economies
World GDP Outlook
Note: ASEAN-5 is comprised of Indonesia, Malaysia, Philippines, Thailand and Vietnam.
Source: Bloomberg, PotashCorp
Select Asia FX
Jan-
13
Mar
-13
May
-13
Jul-1
3
Sep-1
3
Nov-1
3
Jan-
14
Mar
-14
90
100
110
120
130
140
150
160
170ArgentinaChileBrazil
Select Latin America FX
90
100
110
120
130
140
150
160
170IndonesiaIndiaChina
Index: Jan 1/2013 = 100
Select Europe and FSU FX
Currency Devaluation Creates Agricultural Opportunity
World Currency Changes (versus USD)
90
100
110
120
130
140
150
160
170Ukraine
Russia
Euro
Index: Jan 1/2013 = 100 Index: Jan 1/2013 = 100
0
50
100
150
200
250
300
350
400
450 Crop Price Index* Fertilizer Price Index**
Price Index (2005 Average = 100)
Crop and Fertilizer Price IndexSignificant Economic Incentive for Increased Fertilizer Usage
Source: Bloomberg, PotashCorp
* Based on corn, soybean and wheat prices (weighted by global consumption).
** Based on urea, DAP and KCl prices (weighted by global consumption).
Source: USDA, PotashCorp
Million Acres
Wheat
Million Acres
Soybeans
Million Acres
Corn
Expect Some Acreage Shifts in 2014
US Crop Acreage
30
40
50
60
70
80
90
100
30
40
50
60
70
80
90
100
30
40
50
60
70
80
90
100
Lighter shaded area refers to forecast range for 2014.
Source: USDA, AAPFCO, PotashCorp
Based on fertilizer year data. 14F refers to the 2013/14 fertilizer year.
Seeded acres based on corn, soybean, wheat and cotton.
94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13E
14F
0
5
10
15
20
25
180
190
200
210
220
230
240
250Nitrogen Phosphate Potash Seeded Acres
Million Acres
US Fertilizer Use and Crop AcreageFertilizer Demand Should be Strong Despite Potentially Lower Corn Acreage
Million Nutrient Tons
Source: Statistics Canada, Agriculture Canada, Kostal Ag, PotashCorp
94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13E
14F
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
50
55
60
65
70
75Nitrogen Phosphate Potash Seeded Acres
Million Acres
Canada Fertilizer Use and Crop AcreageFertilizer Movement Has Been Slow Compared to Recent Fertilizer Years
Million Nutrient Tonnes
Based on fertilizer year data. 14F refers to the 2013/14 fertilizer year.
Million tonnes
03 04 05 06 07 08 09 10 11 12 13F0
20
40
60
80
100
120
0%
10%
20%
30%
40%
50%
60%BrazilArgentinaOthersGlobal Trade Share
Million tonnes
Soybean Production Expected to Rise; Corn Output to Decline
South American Crop Production
Soybean Production Corn Production
03 04 05 06 07 08 09 10 11 12 13F0
20
40
60
80
100
120
140
160
30%
35%
40%
45%
50%
55%
60%
65%BrazilArgentinaOthersGlobal Trade Share
Source: USDA
Percent SharePercent Share
Million tonnes
03 04 05 06 07 08 09 10 11 12 13F0
5
10
15
20
25
30
35
0%
5%
10%
15%
20%
25%Ukraine Russia Global Trade Share
Million tonnes
Political Tension Has Created Uncertainty in Grain Markets
Ukraine and Russia Grain Exports
Corn Exports Wheat Exports
03 04 05 06 07 08 09 10 11 12 13F0
5
10
15
20
25
0%
5%
10%
15%
20%
25%Ukraine Russia Global Trade Share
Source: USDA
Percent SharePercent Share
Fertilizer Market Overview
Source: Fertecon, CRU, Industry Publications, IFA, PotashCorp
Million Tonnes KCl
2014 Shipments Expected to Match Growth in Consumption
World Potash Shipments and Consumption
* 2014F based on mid-point of PotashCorp shipment forecast of 55-57 million tonnes.
2012 2013 2014F0
1
2
3
4
5
6
7
8
9
10First Half Second Half 10-Year Average*
Million Tonnes KCl
Expect Demand Will Increase to Historical Average Levels
North American Potash Shipments
Source: IPNI, TFI, USDOC, PotashCorp
* Represents Olympic average (removing highest and lowest shipment totals)
2012 2013 2014F0
10
20
30
40
50
60
70
80
90
100
Domestic Producers Offshore Imports
Percentage of Total Shipments
Source: Fertecon, CRU, IFA, PotashCorp
Operating Rate* - PercentMillion Tonnes KCl
Expect Increased Demand and Lower Operational Capability in 2014
World Potash Supply and Demand
* Based on percentage of operational capability (estimated annual achievable production level). 2014F based on mid-point of PotashCorp’s demand forecast range of 55-57 MMT.
Phosphate Market Update
Delayed buying, cancelled/deferred import vessels and
lower domestic production providing near-term support.
Import demand could level off following very robust 2013.
OCP had loading difficulties in Q1 due to
adverse weather. Production issues in Tunisia and South
Africa.
China has lowered its export tax but remains a higher-cost supplier.
Indian DAP inventories have been reduced;
expect significant increase in import volumes for 2014.
Source: CRU, PotashCorp
2014 global trade is forecast to reach 20.5 million tonnes.
Million TonnesMillion Tonnes
Demand Recovery in India to Support Global Phosphate Trade
Global DAP/MAP Trade Change
World DAP/MAP Imports World DAP/MAP Exports
16,000
17,000
18,000
19,000
20,000
21,000
16,000
17,000
18,000
19,000
20,000
21,000
Source: TFI, USDOC, PotashCorp
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
0
1
2
3
4
5
6
7
8 Domestic Producer Shipments* Imports* Previous 3-Year Average
Million Short Tons
Impacted by Lower Producer Shipments and Deferred Import Cargoes
US DAP and MAP Shipments
* 2013/14 fertilizer year.
Million Tonnes – 2013E
Supply Restrictions Have Impacted Ammonia Trade
World Ammonia Exports
Trinid
ad
Russia
Saudi
Ara
bia
Canad
a
Ukrai
ne
Indo
nesia
Austra
lia
Alger
iaQat
ar
Mal
aysia Ira
n
Egypt
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
Source: Fertecon, PotashCorp
Global trade estimated at 18.5 million tonnes. Top 10 countries account for approximately 80% of total.
Million Tonnes – 2013E
A Shift in the Largest Global Suppliers
World Urea Exports
China
Qatar
Russia
Saudi
Ara
bia
Ukrai
ne Iran
Egypt
Canad
a
Indo
nesia UAE
0
1
2
3
4
5
6
7
8
9
Source: Fertecon, PotashCorp
Global trade estimated a 45-46 million tonnes. Top 10 countries account for approximately 70% of total.
Source: USDOC
Million Short Tons
UAN Imports
Million Short Tons
Ammonia ImportsUrea Imports
US Imports Trail Historic Levels
US Nitrogen Imports
Jul
Aug
Sep
Oct
Nov
Dec Jan
Feb
Mar Ap
rM
ay Jun
0
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
8,000,000
9,000,000 2013/14Previous 5-Year Average2012/13
Million Short Tons
Jul
Aug
Sep
Oct
Nov
Dec Jan
Feb
Mar Ap
rM
ay Jun
0
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
8,000,000
9,000,000 2013/14Previous 5-Year Av-erage
Jul
Sep
Nov Jan
Mar
May
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
3,500,000
4,000,000
4,500,0002013/14Previous 5-Year Av-erage
Market Profile –Africa, Europe and FSU
World Fertilizer ConsumptionMore than 20 Percent of Consumption Outside of Asia, North and Latin America
Source: Fertecon, IFA, PotashCorp
Million Nutrient Tonnes
200220032004200520062007200820092010201120120
20
40
60
80
100
120
140
160
180
200 China India Other Asia Latin America
North America Other*
Percent Share of Other* Market Category - 2012
46%
20%
14%
12%
8%
Europe
Middle East
FSU & Central Asia
Africa
Other
Based on a combination of calendar and fertilizer year data. 2012 refers to 2012 CY and 2012/13 FY.
21%
Source: United Nations
19601970
19801990
20002010
2020F
2030F
2040F
2050F0.0
0.5
1.0
1.5
2.0
2.5Rural Urban
Population - Billions
0.0
0.5
1.0
1.5
2.0
2.5
0%
5%
10%
15%
20%
25%
30%Sub-Saharan AfricaNorth AfricaShare of World Population
Share of World - Percent
Growing Population with Significant Urbanization
African Population Projections
Population - Billions
Source: FAO, United Nations, PotashCorp
1970 1980 1990 2000 2010 2020F0.0
0.1
0.2
0.3
0.4
0.50.450
0.358
0.288
0.2440.221 0.208
Arable Land - Hectares/Capita
Rising Population Requires Increased Productivity on Existing Land Base
Arable Land per Capita in Africa
Source: USDA
Coffee Cotton Meat Corn Sugar Wheat Rice0%
5%
10%
15%
20%
25%
30%
35%
40%Imports Exports
Share of World Trade
Africa Is a Significant Importer of Food
African Trade in Selected Agriculture Commodities
Source: FAO
74%
6%
20%
Higher Yields Will Be Primary Driver of Production Growth
Sources of Future Growth in Crop Production
Sub-Saharan Africa North Africa
Cropping Intensity
Yield Increases
Land Expansion
80%
20%
Cropping Intensity
Yield Increases
Source: USDA, IFA, FAO, PotashCorp
North America
EU South America
Asia Sub-Saha-
ran Africa
0
1
2
3
4
5
6
7
Grain Yield – Tonnes per Hectare*
Yields in Sub-Saharan Africa Lag As Does Fertilizer Use
Grain Yields and Fertilizer Use
* Based on 2011-2013 average
World average
Application Rate – KG/Hectare
US
South Africa
MoroccoKenya
Ethiopia
Nigeria
Tanzania0
20
40
60
80
100
120
140
160 Nitrogen Phosphate Potash
World
Africa
Source: IFA, PotashCorp
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0Nitrogen Phosphate Potash N:K Ratio
Million Tonnes
Low Growth Rates and Increasingly Unbalanced Application Rates
African Fertilizer Market – Opportunities and Challenges
N:K Ratio
Africa Fertilizer Market
% of World Consumption 2.8%
CAGR (1992-2012) 1.9%
N:K Ratio 6.8:1
Source: FertilizerAfrica, Fertilizer Week, DTN
Retail Fertilizer Price US$/Tonne – January 2014
Several Barriers Impact Fertilizer Affordability and Accessibility in Africa
Fertilizer Supply Chain Cost Comparison
Mozambique
Rwanda
Uganda
Malawi
Zambia
Tanzania
Nigeria
Kenya
US Midwest
0 200 400 600 800 1,000 1,200
Urea FOB Middle East Supply Chain Cost
Source: IFA, FAO, PotashCorp
Million Tonnes KCl
Opportunity to Increase Potash Use
African Potash Use Scenarios
Area increase based on FAO forecast of 20 percent increase in arable land.
European Fertilizer ConsumptionConsumption Has Declined Since the Early 1990s
Source: IFA, PotashCorp
Million Nutrient Tonnes N:K Ratio
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
0
5
10
15
20
25
30
0
1
2
3
4
5Nitrogen Phosphate Potash N:K Ratio
European Fertilizer ConsumptionMajority of Use on Cereals in Western Europe
Source: IFA
Percent Share by Crop Percent Share by Market
22%
28%
9%
10%
31%
WheatOtherCrops
Oilseeds
Other Cereals
Fruits & Vegetables
19%
15%
12%
10%
9%
35%
Germany
Spain
France
Poland
Other
UK
Source: USDA
Data based on crop year. 13F refers to 2013/14 crop year.
Area Decreasing With Yield Volatility Increasing
European Grain Acreage
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
0
10
20
30
40
50
60
70
0
1
2
3
4
5
6Harvested Area Yield
Yield – Tonnes Per Hectare Harvested Area - Million Hectares
Million Tonnes – 2013E
Majority of Supplies Are From Domestic and FSU Producers
Potash Supplies to Europe
Germ
any
Belar
us
Russia
Spain UK
Isra
el
Chile
Canad
a
Jord
an0.0
0.5
1.0
1.5
2.0
2.5
Source: CRU, Fertecon, PotashCorp
European Potash ShipmentsExpect Steady Consumption but with Upside Potential
Source: Fertecon
Million Tonnes KCl
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
F
2015
F
2016
F
2017
F
2018
F
2019
F
2020
F0
1
2
3
4
5
6
7
8
9 Western Europe Central Europe
FSU Fertilizer ConsumptionConsumption Collapsed and Has Slowly Increased Since the Early 1990s
Source: Fertecon, IFA, PotashCorp
Million Nutrient Tonnes
Based on a combination of calendar and fertilizer year data. 2012 refers to 2012 CY and 2012/13 FY.
N:K Ratio
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
0
5
10
15
20
25
30
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0Nitrogen Phosphate Potash N:K Ratio
FSU Fertilizer ConsumptionMajority of Use on Cereals in Russia, Belarus and Ukraine
Source: IFA, PotashCorp
Percent Share by Crop Percent Share by Market
37%
23%
20%
20%
Russia
Other
Ukraine
Belarus
32%
28%
9%
9%
22%Wheat
OtherCrops
Oilseeds
Other Cereals
SugarCrops
Source: USDA
Data based on crop year. 13F refers to 2013/14 crop year.
Major Shifts Have Occurred in Production and Consumption
FSU Grain Profile
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
F0
20
40
60
80
100
120
140
0
25
50
75
100
125
150
175
200
225Harvested Area Production
Million TonnesMillion Hectares
Source: USDA, IPNI, PotashCorp
* Based on wheat, corn and barley
Tonnes/HectareChange from 2011-2013 Average (Million Hectares)
Opportunities for Acreage and Yield Growth
FSU Agricultural Potential
FSU Grain* Area Expansion Potential Russia Grain Yield Potential
2014
F
2015
F
2016
F
2017
F
2018
F
2019
F
2020
F
2021
F
2022
F0
2
4
6
8
10
12Russia Ukraine Other FSU
Corn Wheat Barley0
1
2
3
4
5
6
7 Current Yield Yield Gap**
** Based on IPNI estimate of yield potential using best management practices.
Source: IPNI
KG/HA of K20
Potash Consumption Is Well Below Recommended Levels
Russian Potash Application Rates
Barley Corn Wheat0
5
10
15
20
25
30
35
40
7
13
7
35
30 30
Current Practice Recommended Rate
FSU Potash ConsumptionExpected Growth Driven by Acreage and Application Rate Expansion
Source: Fertecon
Million Tonnes KCl Equivalent
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
F
2015
F
2016
F
2017
F
2018
F
2019
F
2020
F0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0 Russia Ukraine Belarus Other
Based on a combination of calendar and fertilizer year data. 2012 refers to 2012 CY and 2012/13 FY.
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