IFD Overview: Firm Demand, Snug Markets
15 December 2008 Although growth is expected to slightly decelerate in the near term, the outlook for the global economy is firm in the medium term. Rising incomes in many countries will continue to boost consumption patterns, including increasingly diversified diets.
This trend, combined with policies promoting biofuel production, is a key driver of growing fertilizer demand. As the majority of the world’s population will henceforth live in cities, farmers are facing ever more pressure to produce higher yields per unit of cultivated land.
Indeed, world cereal stocks are expected to decline again this year, despite what looks to be a bumper crop.
In response to the strong industrial demand, coarse grain consumption has been increasing firmly and is likely to continue doing so. The global cereal stock-to-use ratio could decline to its lowest level for more than two decades, with only some 40 days of coarse grain supplies on hand. Because of the very fast expansion of the US ethanol industry and of the huge amounts of corn needed as feedstock, world cereal production is not seen matching demand before 2009.
World inventories are also seen declining for oilseeds and cotton, while they could increase for sugar. As a result of this tight supply/demand context, and of fears of lower than expected harvests due to recent unfavorable weather conditions in some regions, farmers have been earning high prices for many crops, which generally bodes well for fertilizer consumption.
There are, nonetheless, uncertainties about the exact progression of fertilizer demand for several reasons. Significant shifts in cropping patterns are projected in some countries, and this will impact the types of products farmers apply. Because of the limited potential to increase cultivated land in the medium term – with the noticeable exceptions of Brazil and Indonesia – farmers will probably need to use more nutrients, including manufactured fertilizers, to increase yields.
Limiting Factors Impact Growth
At the same time, there are some countervailing factors that moderate the growth of fertilizer demand.
Industrial uses, particularly biofuel production, generate huge amounts of co-products such as distillers’ grains and oilseed meals. Used as animal feed, these co-products replace some of the grain in feed rations.
More and more countries are developing regulations on water, air, and soil quality, which impact the way nutrients are used. Farmers are increasingly required to recycle organic nutrient sources and to implement nutrient budgeting at the farm or field level. In this context, nitrogen use efficiency has greatly improved over the past two decades in several developed countries.
The imperative to generalize this trend, which is supported by the industry and its partners, should lead to improved nutrient use efficiency in coming years.
North American, Asian Demand Drive Market
Fertilizer consumption in North America is expected to weigh in at 8.7%, due largely to surging demand for corn earmarked for ethanol production. Thereafter, fertilizer demand is expected to remain high, but to grow only modestly, in part because the corn acreage will be near its upper limit.
South Asia and East Asia will both perform strongly in coming years, and will account for some 70% of the total growth in fertilizer demand from now until 2011/12. Latin America will also contribute 15% of the expected growth, although some of that will be recovery from a recent slowdown.
All in all, fertilizer demand will grow steadily over the coming five years, led by potash (+3.2% per year), phosphate (+2.9%) and then nitrogen (+2.3%). Fertilizer use will therefore become more balanced, which should help nutrient use efficiency, raising yields, and reducing environmental impacts.
Nitrogen Excess Looms
During the period from 2007 to 2011, nitrogen capacity developments will take place in most exporting countries, yet three-quarters of new ammonia capacity will be dedicated to domestic markets, with only 25% for export.
IFA estimates that the global nitrogen supply/demand balance shows a surplus of 5 million metric tonnes (Mt) nitrogen (N) in 2007, rising to 17 Mt N in 2011. Starting in mid-2008, the rapid growth of capacity will ease the global supply-demand balance. The growth of the surplus will accelerate after 2009, as new large plants come on stream. IFA’s 2007 global urea capacity survey shows that close to 50 new plants are planned to come on stream between 2007 and 2011, leading to urea capacity exceeding demand by some 8% by 2011, if all announced projects proceed as planned.
World potash production in 2006, expressed as potassium chloride (KCl) or muriate of potassium (MOP), declined by 10%, due to reduced international trade.
Global potash capacity is forecast to increase from 65.6 Mt MOP in 2006 to 76.3 Mt in 2011. On a regional basis, most of this new capacity will be dedicated for exports, except in China. By 2010, the main addition to capacity would come from a new greenfield operation in Argentina.
IFA estimates that the global potash supply/demand balance will tighten in the short term, with a declining surplus from 2006 to 2009. Starting in 2010, the addition of new capacity will reverse the declining surplus trend, with a significant contribution from Argentina. By 2011, the global surplus will reach 16% of capacity.
The global supply of processed phosphates expanded in 2006, despite a drop in phosphate rock output, but phosphoric acid exports were tight in view of strong domestic demand and some production disruptions.
The international phosphate fertilizer industry continued to face high input costs, which resulted in sustained prices of diammonium phosphate (DAP) and monoammonium phosphate (MAP) during 2006. In early 2007, projections of strong demand and expectations of tight supplies led to record price levels.
Based on IFA’s projections for the period from 2007 to 2011, world phosphate rock capacity is expected to increase at a compound annual growth rate of 4% from 2007 to 2011. China alone will account for one-third of the increase during this period.
During the period from 2006 to 2011, global phosphoric acid capacity is forecast to increase by 5.9 Mt to 49.6 Mt P2O5 in 2011. Close to three-quarters of this net expansion will be dedicated to domestic downstream processing. The main additional capacity will occur in China and Saudi Arabia. Therefore, no significant addition to merchant phosphoric acid capacity is expected during the forecast period.
IFA estimates that the overall phosphoric acid supply/demand situation will be tight during the period from 2006 to 2010, with a marginal surplus of less than 2% of the global supply. However, that surplus will rise to 4% the following year.
Between 2007 and 2011, the world production of elemental sulfur is projected to increase by 6.4% per year, the highest growth rate registered since the mid-1980s. On a regional basis, West Asia will account for more than one-third of the growth in elemental sulfur production.
In the near future, the global supply/demand balance of elemental sulfur should be tight in 2007 and 2008, soften in 2009, and move to a surplus in 2011.
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