Brazil: centre of phosphates excellence

COUNTRY REPORT

Brazil: centre of phosphates excellence

Brazil’s phosphate industry is on a growth dash to meet rising domestic demand. We report on the major acquisitions, investments and expansions by CMOC, Mosaic, Yara and Itafos.

Yara’s flagship Serra do Salitre phosphate project, Minas Gerais, Brazil.

PHOTO: YARA

Brazil consumes more than 16 million tonnes of nutrients each year. This makes the country the world´s fourth-largest fertilizer market, ranked behind China, India and the US. The country currently accounts for an impressive 11 percent of global fertilizer consumption.

Brazil’s emergence as a global agricultural powerhouse also means fertilizer demand is continuing to grow. Total fertilizer product deliveries reached 36.2 million tonnes in 2019, a 732,000 tonne increase on the previous year. The latest fertilizer statistics show Brazilian demand accelerating, with January-May 2020 fertilizer consumption, at 12.7 million tonnes, up by more than 18 percent year-on-year.

Growing import demand

Brazil’s fertilizer market remains heavily import-reliant with around 80 percent of total demand being met by imports. In terms of individual nutrients, imports supply more than 95 percent of domestic potash consumption and account for roughly 83 percent of the country’s nitrogen use. While Brazil is less import reliant for phosphate – having access to substantial domestic production capacity – the country still looks to the international market to supply around 60 percent of its domestic phosphate needs.

Brazil’s total nameplate capacity for domestic phosphates production is around 12 million tonnes. Single superphosphate (SSP) production capacity (8.6 million tonnes capacity) predominates supplemented by significant triple superphosphate (TSP, 1.6 million tonnes) and monoammonium phosphate (MAP, 1.5 million tonnes) production assets (Figure 1). Mosaic Fertilizantes is by far the country’s largest phosphates producer. Two other foreign-owned companies, Yara and CMOC, also operate major phosphate production assets in Brazil (Figure 2).

Brazil was forecast to consume 13.7 million tonnes of phosphate fertilizers in 2019, with some 5.9 million tonnes (43 percent) domestically produced and 7.8 million tonnes (57 percent) imported. That contrasts with higher domestic production of 6.4 million tonnes and correspondingly lower imports of 7.2 million tonnes in 2018, a combined total of 13.6 million tonnes.

Fig. 1: Brazil’s phosphate production capacity 2018, by product (’000 t)

Fig. 2: Brazil’s phosphate production capacity 2018*, by company (’000 t)

Domestic production, although focussed on SSP manufacture (Figure 1), includes significant volumes of higher analysis phosphate products. These included around 620,000 tonnes of MAP and one million tonnes of TSP in 2019, based on International Fertilizer Association (IFA) data. These production levels were down significantly from domestic deliveries for MAP and TSP of 1.2 million tonnes and 1.3 million tonnes, respectively, in 2018.

Brazilian import demand for MAP is also particularly high. The country imported 3.9 million tonnes of MAP in 2019 at a cost of $1.4 billion, according to Brazil’s Comexstat agency. Latest figure for 2020 indicate MAP imports of 3.7 million tonnes in the year to date. The principal international suppliers include Morocco, Saudi Arabia, United States, China, Russia and Mexico.

Phosphate-hungry soybean

Soybean is Brazil’s most widely-grown agricultural commodity. Large-scale cultivation of this potash- and phosphate-hungry crop is responsible for more than four-fifths of domestic fertilizer consumption.

The predominance of soybean farming distorts Brazil’s fertilizer consumption. The country consumes much larger amounts of potash and phosphate, for example, relative to nitrogen, compared to averages in other world markets. Phosphorus (P2 O5 ) is the most widely-applied nutrient in Brazil (39%), followed closely by potassium (K2 O, 35%) while – highly unusually – nitrogen (N) use is left trailing in third place (26%).

Future growth in Brazilian phosphate consumption, spurred on by rising fertilizer requirements from soybean, could result in an additional two million tonnes of annual (P2 O5 ) demand by 2030, according to projections by ANDA and Yara (Figure 3) . They predict that soybean fertilization requirements will eventually capture a 50 percent share of the Brazilian fertilizer market. Demand will mainly come from large soybean farms in central regions, particularly Mato Grosso, and from soybean-growing cooperatives in Brazil’s south.

China Molybdenum (CMOC)

China Molybdenum Co Ltd purchased Anglo American’s substantial Brazilian niobium and phosphates business for $1.5 billion in May 2016.

The purchase transferred to China Molybdenum ownership of the 1.3 million tonne capacity Chapadao phosphate mine, the Coqueiros and Morro Preto phosphate deposits, the Ouvidor beneficiation plant and two fertilizer complexes at Catalão and Cubatão.

The Cubatão complex in São Paulo state has favourable logistics, being close to Santos Port and Mato Grosso state. It has the annual capacity to produce:

• 600,000 tonnes of SSP
• 150,000 tonnes of phosphoric acid
• 60,000 tonnes of the feed additive dicalcium phosphate (DCP).

The company’s other production site at Catalão in Goiás state is located just seven kilometres away from Chapadao phosphate mine. It has the annual capacity to produce:

• 600,000 tonnes of SSP
• 200,000 tonnes of MAP/TSP
• 100,000 tonnes of DCP.

In the year prior to the sale, Anglo American’s Brazilian operations produced 1.3 million tonnes of phosphate concentrate and 1.1 million tonnes of phosphate fertilizers. Combined niobium and phosphates sales generated earnings (EBITDA) of $146 million for the company in 2015 from revenues of $544 million (Fertilizer International, 470, p10).

Fig. 3: Brazil’s projected phosphate supply/demand gap

Anglo American’s original plan to more than double phosphate rock capacity and expand production at the Catalão site is being pursued by China Molybdenum. The main objectives of this low capex brownfield project were to provide additional capacities for:

• 1.4 million tonnes of phosphate rock
• 500,000 tonnes of phosphoric acid
• 1.1 million tonnes of sulphuric acid
• 700,000 tonnes of phosphate fertilizer.

The project is reportedly on-track to deliver 440,000 t/a (P2 O5 ) of extra MAP/TSP capacity during the second-half of 2020.

Mosaic Fertilizantes

The Mosaic Company purchased Vale Fertilizantes, the fertilizer arm of Vale S.A., for $2.5 billion in January 2018.

As part of this major deal, Mosaic acquired five Brazilian phosphate rock mines, four chemical and fertilizer production sites and one potash plant. Outside of Brazil, Mosaic also gained ownership of Vale’s 40 percent interest in the Miski Mayo phosphate mine in Peru and its potash project at Kronau, Saskatchewan, as part of the deal.

The newly-formed subsidiary company, Mosaic Fertilizantes, has the capacity to produce 4.8 million tonnes of finished phosphates (SSP, TSP and MAP) and 500,000 tonnes of potash in Brazil, making it Brazil’s leading fertilizer producer and distributor (Figure 4). Mosaic also holds a majority interest in Fospar which owns and operates a 450,000 t/a capacity SSP granulation plant in Brazil.

Mosaic’s agreement with Vale excluded the nitrogen and non-integrated phosphate business in Cubatão. These assets were acquired separately by Norway’s Yara International (see below).

Most of Vale’s fertilizer assets and distribution network in Brazil were originally acquired through its purchase of Fosfertil in 2010.

Domestic phosphate rock production took a major hit in 2019 after Mosaic Fertilizantes was forced to idle three of its Brazilian phosphate mines for a large part of the year, as it worked to comply with new tailings dam legislation. The Araxá and Tapira mines in Minas Gerais subsequently reopened at full capacity in September 2019, following the full resumption of operations at the Catalão mine in June that year. Despite these prolonged mine closures, the company still produced 2.6 million tonnes of finished phosphates in 2019, down nine percent on 2018 production levels. In total, The Mosaic Company sold 9.2 million tonnes of fertilizer products in Brazil in 2019, equivalent to a 25 percent market share.

Fig. 4: Mosaic Fertilizantes is one of Brazil’s largest fertilizer companies, operating production, blending and storage assets throughout the country

In March 2020, Mosaic Fertilizantes unveiled plans to increase its annual fertilizer output in Brazil by 800,000 tonnes to 4.5 million tonnes. Floris Bielders, the company’s commercial VP, said he expected Brazilian fertilizer consumption to climb by up to three percent in 2020 in response to rising demand from local farmers. “Mosaic is already receiving orders for fertilizer deliveries in the first quarter 2021,” Bielders said. By March time, Brazil’s farmers had reportedly already sold about 20 percent of next season’s soybean crop. This had netted higher export market revenues due to the US dollar’s climb against the local currency.

Looking ahead, Mosaic says its main priorities in Brazil will be:

• Normalising operations having resolved its tailings dam issues
• A second round of supply chain efficiencies
• Reducing phosphate rock costs and ramping-up output at its Patrocinio mine
• Continuing to grow premium product sales
• Growing its co-product sales – gypsum and excess sulphuric acid.

Yara Brazil

Brazil is Yara International’s single largest market, accounting for one-third of the company’s global employees and operations. Yara’s cash generating units in Brazil cover fertilizer production – including phosphate mining and SSP production – together with fertilizer blending and distribution. The Norwegian-headquartered company is capable of delivering around nine million tonnes of fertilizers to the Brazilian market, covering roughly one-quarter of domestic demand.

Yara expanded its presence in Brazil by purchasing the Cubatão fertilizer complex from Vale in May 2018 for $255 million. The purchase was expected to double Yara’s annual fertilizer production capacity in Brazil to three million tonnes.

The company has embarked on a Brazilian asset-buying spree in recent years. Notable acquisitions include the purchase of Fertibras in 2006, Bunge’s fertilizer business in 2013, and the part-purchase of Galvani in 2014.

The large-scale Cubatão complex has the capacity to produce around 200,000 tonnes of ammonia, 600,000 tonnes of nitrates and 980,000 tonnes of phosphate fertilizers annually. A nearby import terminal supplies the complex with ammonia, phosphate rock and sulphur raw materials. Locally-sourced natural gas is also used in ammonia production.

Cubatão sold 1.3 million tonnes of nitrogen and phosphate products in 2016, generating revenues of $413 million and earnings of $30 million. The complex, which employs 970 permanent and 930 contract staff, is notable for supplying Brazil’s huge sugarcane industry – the world’s largest – with nitrogen fertilizers such as ammonium nitrate.

Yara pledged to invest $80 million in upgrades at the complex in the period up to 2020. It expects this investment to generate $25 million in annual savings by optimising the site’s costs, assets and product portfolio.

Yara is also due to complete the expansion of its fertilizer granulation, blending and bagging complex in the southern state of Rio Grande do Sul by the end of 2020. The $400 million investment should increase the production capacity of the Rio Grande unit by around 60 percent. Granulation capacity for NPKs and SSP will increase from 750,000 t/a to 1.2 million t/a, while fertilizer mixing and bagging capacity is expected to climb from 1.5 million t/a to 2.2 million t/a. The expanded complex has two phosphate and NPK production plants, an acidulation plant, a granulation plant and a fertilizer blender.

Yara buys Galvani assets

Following the acquisition of the Cubatão complex, Yara further cemented its Brazilian market position by purchasing outright a number of assets from Galvani (Galvani Indústria, Comércio e Serviços) in October 2018. Yara initially took a 60 percent stake in the major Brazilian producer in 2014.

Galvani’s main business is phosphate rock mining, SSP production and fertilizer distribution. The company employed around 1,250 staff and generated revenues of $220 million in 2017 from fertilizer sales of one million tonnes. It markets powdered and granulated SSP in Brazil, with incorporated micronutrients, under the Phosagro brand. Galvani also sells fertilizer blends under the Phosmix moniker and granulated NPKs.

Prior to the 2018 buy-out and division of assets, Galvani operated a total of around one million tonnes of SSP production capacity through its Paulínia, Sao Paulo, and Luis Eduardo Magalhães, Bahia, plants. Both plants sourced phosphate rock from two company-owned mines, Lagamar in Minas Gerais and Angico dos Dias in Bahia, and the leased Irecê mine.

The 2018 deal with Yara saw the outright transfer to Yara Brazil of the Paulínia SSP plant and bulk blending unit, together with the under-construction Serra do Salitre phosphate project.

Yara’s purchase agreement with the Galvani family included a cash payment of $70 million over a three-year period on closure of the deal, and a future payment conditional on project success. The full integration of Galvani into Yara Brazil should unlock annual savings (synergies) of $15 million after tax from 2020 onwards.

The Galvani family retains ownership and control of the Bahia-based Luis Eduardo Magalhães production plant and the Angico dos Dias and Irecê mines, as well as the Santa Quitéria greenfield phosphate project. These assets now make up a new company worth around $90 million.

Serra do Salitre project

Yara’s flagship Serra do Salitre project is ranked as Brazil’s foremost investment in greenfield fertilizer capacity, due to its scale and imminent start-up (Fertilizer International 488, p45). The project is also ideally located in Minas Gerais state, close to key fertilizer-consuming markets.

The Salitre project represents a major commitment by Yara to the Brazilian market, and a significant expansion of its in-country operations. It is also one of only a handful of priority investments Yara is making in production capacity. The company is investing $229 million in the project in 2020 following similar substantial investments in 2018 and 2019.

The project was originally a joint venture between Yara International and Brazilian producer Galvani. However, the project is now 100 percent Yara-owned (see above).

Serra do Salitre is divided into two phases. The initial phase involved the completion of a 1.2 million tonne capacity phosphate rock mine. This delivered its first 150,000 tonnes of mined rock in early 2018. The second phase, a one million tonne capacity production plant for finished phosphate products, is now scheduled for completion during the second-half of 2021.

Building a fully-integrated fertilizer production plant in Brazil is a costly, complex and highly ambitious venture. The scale of the project is such that it will increase national P2 O5 production by around 20 percent. Importantly, Salitre will ensure that Yara’s Paulínia production plant is self-sufficient in P2 O5 by providing a dedicated supply of phosphate rock.

Once operational, Serra do Salitre will generate:

• 900,000 tonnes of sulphuric acid
• 1.2 million tonnes of phosphate rock
• 250,000 tonnes of phosphoric acid
• One million tonnes of granulated finished phosphate products
• More than 1.2 million tonnes of gypsum
• 1,500 jobs during the operational phase
•  Around 29 MW of energy.

The project’s product mix will include diammonium phosphate (DAP), MAP, nitrophosphate (NP), SSP and TSP.

Itafos

Itafos, formerly MBAC Fertilizer Corp, is the owner and developer of the vertically-integrated Arraias SSP project in Brazil. The Toronto stock exchange listed company is also the owner-operator of the Conda, Idaho, phosphate mine and plant in the US, having bought this from Agrium in 2017.

Itafos supplies the Brazilian market via the recently recommissioned 500,000 t/a capacity Arraias SSP production complex at Tocantins in central Brazil. This complex includes a mill, a beneficiation plant, a sulphuric acid plant, an SSP plant and a granulation plant. The complex consumes phosphate rock extracted from an Itafosowned open pit mine located around 10 miles away from the production site.

The Arraias plant occupies a strategic position in one of the world’s fastest growing fertilizer markets, according to Itafos. Its SSP sales are targeted at eight Cerrado states – Bahia, Goiás, Mato Grosso, Piauí, Maranhão, Tocantins, Pará and Minas Gerais. These states are collectively responsible for around half of Brazil’s annual SSP demand of 5 million tonnes, although Itafos is targeting sales within a sub-region that consumes 1.1 million tonnes.

Itafos has other phosphate projects under development in South America including the Santana project – a vertically-integrated phosphate mining and fertilizer project located in Pará, Brazil – and the Mantaro phosphate rock mining project in Peru. The company is also developing the 1.34 million t/a capacity Farim phosphate rock mining project in Guinea Bissau, West Africa. This had been expected to enter commercial production as early as the second-half of 2020.

Foreign ownership, consolidation and vertical integration

Brazil’s phosphate production industry underwent a wholesale change of ownership in 2018. In the previous year, production assets were overwhelmingly domestically-owned with Anglo American the only foreign market player. Yet by 2018 industry ownership had been divided up between US-, Chinese- and Norwegian-headquartered companies, following a buying spree by Mosaic, China Molybdenum and Yara.

These changes in production ownership are part of the wider, rapid trend for vertical integration within the Brazilian fertilizer market. In distribution and blending, notable consolidations include:

• Yara’s compete acquisition of Bunge’s fertilizer blending plants, brands and warehouse in 2013
• Mosaic’s purchase of Archer Daniels Midlands Brazilian fertilizer distribution business in 2014
• OCP’s and Nutrien each taking a 10 percent stake in Fertilizantes Heringer in 2014 and 2015
• EuroChem taking a controlling interest in Fertilizantes Tocantins in 2016.

These moves have left fertilizer distribution highly consolidated and vertically integrated, with 80 percent of the Brazilian market now in the hands of just four key players – Mosaic, Yara, Fertipar and Fertilizantes Heringer.

Brazil – being a massive agricultural economy with a major fertilizer supply deficit – has become highly important strategically to international fertilizer producers with expansion plans. Gaining market share and being able to control logistics in Brazil, a key demand market, has become an increasing priority for major market players such as EuroChem, Mosaic, OCP, PhosAgro and Yara.