Fertilizer industry handbook 2014 (slides only)
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Yara Fertilizer Industry Handbook This handbook describes the fertilizer industry and in particular the nitrogen part which is the most relevant for Yara International. The document does not describe Yara or its strategies. For information on Yara-specific issues please see the Capital Markets Day presentations. Fertilizers are essential plant nutrients that are applied to a crop to achieve optimal yield and quality. The following slides describe the value and characteristics of fertilizers in modern food production.
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Fertilizer industry handbook 2014 (slides only)
- 1. Yara Fertilizer Industry Handbook February 2014
- 2. 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
- 4. IR – Date: February 2014 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 Potassium Phosphorus Calcium Soil conditions & other growth factors
- 5. IR – Date: February 2014 4 What is fertilizer? Nitrogen is the main driver of yield
- 6. IR – Date: February 2014 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
- 7. IR – Date: February 2014 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)
- 8. IR – Date: February 2014 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
- 9. IR – Date: February 2014 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
- 10. IR – Date: February 2014 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
- 11. IR – Date: February 2014 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
- 12. IR – Date: February 2014 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)
- 13. IR – Date: February 2014 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
- 14. IR – Date: February 2014 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
- 15. IR – Date: February 2014 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
- 16. IR – Date: February 2014 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
- 18. IR – Date: February 2014 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
- 19. IR – Date: February 2014 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
- 20. IR – Date: February 2014 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
- 21. IR – Date: February 2014 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%
- 22. IR – Date: February 2014 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 %
- 23. IR – Date: February 2014 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%
- 24. IR – Date: February 2014 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
- 25. IR – Date: February 2014 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
- 26. IR – Date: February 2014 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 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 50 60 70 80 90 100 110 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Average cost Yara’s European plants European average (excl. Yara) Source: Fertilizer Europe
- 28. IR – Date: February 2014 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
- 29. Ammonia
- 30. IR – Date: February 2014 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 China Russia India USA Indonesia Trinidad Ukraine Canada Saudi Arabia Egypt Million tons 10 largest producers
- 31. IR – Date: February 2014 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 Total Source: 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
- 32. IR – Date: February 2014 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 Trinidad Russia Saudi Arabia Ukraine Canada Indonesia Algeria Egypt Qatar Iran 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 USA India Korea Morocco France Belgium Taiwan Turkey Germany Spain Million tons 10 largest importers
- 33. IR – Date: February 2014 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
- 35. IR – Date: February 2014 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 China India Indonesia Russia USA Qatar Egypt Pakistan Iran Canada 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
- 36. IR – Date: February 2014 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 China Russia Qatar Ukraine Oman Saudi Arabia Iran Egypt Canada Indonesia 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 India USA Brazil Thailand Mexico Australia Turkey Pakistan Italy France Million tons 10 largest importers
- 37. IR – Date: February 2014 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
- 38. IR – Date: February 2014 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
- 39. IR – Date: February 2014 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
- 41. IR – Date: February 2014 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
- 42. IR – Date: February 2014 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
- 44. IR – Date: February 2014 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)
- 45. IR – Date: February 2014 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
- 46. IR – Date: February 2014 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
- 47. IR – Date: February 2014 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
- 48. IR – Date: February 2014 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 Population (billion) Hectares/person 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
- 49. IR – Date: February 2014 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
- 50. IR – Date: February 2014 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
- 51. IR – Date: February 2014 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
- 52. IR – Date: February 2014 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
- 53. IR – Date: February 2014 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
- 54. IR – Date: February 2014 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
- 55. IR – Date: February 2014 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
- 56. IR – Date: February 2014 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.
- 57. IR – Date: February 2014 56 N-fertilizer consumption from biofuels production 2.0 0.5 0.3 0.6 US - maize for ethanol Europe - rapeseed for biodiesel Brazil - sugarcane for ethanol Others 0.0 0.5 1.0 1.5 2.0 2.5 Million tons N Source: IFA
- 58. IR – Date: February 2014 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
- 59. IR – Date: February 2014 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
- 60. IR – Date: February 2014 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
- 62. IR – Date: February 2014 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
- 63. IR – Date: February 2014 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
- 64. IR – Date: February 2014 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)
- 65. IR – Date: February 2014 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
- 66. IR – Date: February 2014 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
- 67. IR – Date: February 2014 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 2013F 2014F 2015F 2016F 2017F Urea capacity utilization Excluding China Source: Fertecon Aug 2013
- 68. Price relations
- 69. IR – Date: February 2014 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
- 70. IR – Date: February 2014 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
- 71. IR – Date: February 2014 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
- 72. IR – Date: February 2014 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
- 73. IR – Date: February 2014 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
- 74. IR – Date: February 2014 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
- 76. IR – Date: February 2014 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%)
- 77. IR – Date: February 2014 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 36 MMBtu natural gas/tonne ammonia
- 78. IR – Date: February 2014 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 CO2 ** Including load-out * Process gas cost is linked to natural gas price
- 79. IR – Date: February 2014 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
- 80. IR – Date: February 2014 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
- 82. IR – Date: February 2014 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
- 83. IR – Date: February 2014 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%
- 84. IR – Date: February 2014 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
- 85. IR – Date: February 2014 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
- 86. IR – Date: February 2014 85 Example Technical Nitrates for Civil Explosives Various grades of Ammonium Nitrate and Calcium Nitrate for use in the civil explosives and mining industries
- 87. IR – Date: February 2014 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
- 88. IR – Date: February 2014 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
- 89. IR – Date: February 2014 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
- 90. www.yara.com