Fertilizer International 508 May-Jun 2022
31 May 2022
Fertilizer Latino Americano 2022
CONFERENCE REPORT
Fertilizer Latino Americano 2022
More than 745 delegates from 335 companies and 50 countries gathered at the Hilton Downtown, Miami, Florida, 21-23 March, for the Fertilizer Latino Americano 2022 conference. The event was jointly convened by Argus and CRU.
The Russia-Ukraine conflict
The Russia-Ukraine conflict and its impact on global fertilizer trade was a major conference talking point. This topic and the wider reaction on global commodity markets was addressed head-on in the conference’s opening two presentations.
David Fyfe, Argus’ chief economist, spoke of “huge levels of volatility” and the commodity price surge seen since the start of the conflict. Although there has been signs of this easing, commodity prices were still on average 20-40 precent above their pre-crisis levels.
He expected the conflict to have “a chilling impact on economic growth” by wiping 0.7 percent from GDP growth forecasts for the world economy. The crisis was adding yet “another layer of supply chain bottlenecks” and “very elevated levels of inflation”, Fyfe added. This could spark a 2-4 fold increase in consumer inflation.
The EU was disproportionately vulnerable to the conflict – being reliant on Russia for 30 percent of its oil and 50-60 percent of its natural gas imports. Around 1.8 million barrels/day of Russian oil could get shut out of the market, for example. The EU was aiming to half its dependency on Russian natural gas, but higher bids would be required to attract substitute LNG cargoes from the US and Qatar.
Rabobank’s executive director Sam Taylor presented a survey of 900 growers in Brazil.
“Brazil has an outsize exposure to Russian and Belarusian fertilizer supply,” said Taylor. Overall, Latin America is the world’s largest regional importer of fertilizers, with a 40 percent import dependency on Russian potash.
Yet, when questioned on the impacts of the Russia-Ukraine conflict, grower sentiment in Brazil was remarkably positive. Only five percent of respondents said they would cut their acreages if they didn’t have adequate fertilizer stocks. Most would instead continue with planned plantings to take advantage of high crop prices.
While nearly half of growers (48%) had already purchased their fertilizer requirements for the season, only one in ten (11%) had received more than half of their deliveries. Many were looking at alternatives to mineral fertilizers – although less than one-fifth (17%) thought this would compensate for more than half of their nutrient needs.
Taylor’s key takeaway from the survey was: “The high level of conviction [of growers] to planting and throwing down nutrients, despite price.”
The importance of fertilizers to LatAm agriculture
The focus of this keynote panel discussion again turned to impacts of the unfolding Russia-Ukraine conflict.
“[Fertilizer] availability balanced by affordability will be a challenge for all of us,” said Gordon McKenzie, the president and CEO of Canpotex. “Nutrien will be able to add one million tonnes [of potash output] in 2022.” One of his concerns was: “Those who, at these price levels, will mine soils. In Brazil, Mato Gross, the nutrients are not there to mine. People will go hungry as a result of what’s going on.”
Corrine Ricard, the president, Mosaic Fertilizantes, said she didn’t see any intent by Brazil’s farmers to stop applying fertilizers. Instead, it was “more about availability” in her view. She shared Gordon McKenzie’s concerns. “Tropical soils deplete very rapidly compared to Illinois. It won’t be affordability but availability that will stop it [fertilizer applications],” she said.
Ricard said availability worries could make food crops the focus of fertilizer applications in Brazil. Such a change, if implemented, could result in: “Degraded pasture not getting addressed, a yield impact on second corn and a policy change on sugarcane,” she said.
“Brazil is 90 precent import dependent. So, there’s a tremendous emphasis on developing the [domestic] fertilizer industry,” said Ricard. Although she admitted there were no “fast solutions” on this, Brazil had been quick to set up a fertilizer industry council in March to prepare for potential fertilizer supply issues.
“I agree that the reliance on Rusia [for fertilizer supplies] must change,” said Marcelo Altieri, SVP for Latin America at Yara International. “In markets like Peru, 90 percent of product comes from Russia.”
What next for Brazilian agriculture?
Brazil has consistently increased it grains and oilseeds production in recent decades to emerge as a world-leading ag commodity exporter. In her presentation, Flavia Bohone, Argus’ agriculture and fertilizer editor, looked at what’s next for this global powerhouse economy.
Brazil is on course to set a new record this year by producing 265 million tonnes of grains and oilseeds (soybean and corn), according to the latest 2021/22 estimates. Overall, the country is expected to produce and export more corn but less soybean this year, in comparison to 2021. This follows a downgrade to soybean production estimates in March.
Brazil’s wheat production has continued to grow in recent years from around five million tonnes in 2019 to just under eight million tonnes forecast for this year. But with domestic wheat consumption of more than 12 million tonnes expected in 2022, Brazil will still need to import a sizeable share of its domestic needs. Wheat prices surged to 14-year highs in March, yet more fallout from the Russia-Ukraine conflict. While most of Brazil’s wheat imports are sourced from Argentina, according to Bohone, these will still be affected by near record prices.
Nutrients in focus
The Argus fertilizer index has increased by 100 points since the Russian-Ukraine conflict began on 24th February. The Brazil MOP price was also now at an all-time 30-year high: the $1,025/t price on March 22nd comparing to the previous 2008 peak of $1,007/t.
“I’ve been covering the market for 20 years and never seen anything like the last 2-3 weeks,” said Mike Nash, senior editor for fertilizers at Argus. “For potash, it’s the potential loss of Russian material adding to the loss of Belarusian supply.”
He listed the main potash impacts so far as:
- Official sanctions on Belarusian product
- Self-sanctioning in which countries/ companies voluntarily cease buying Russian product
- Russia potentially placing limits on its exports
- Shipping/logistics snags, especially rising freight rates from Black Sea and Baltic ports
- Soaring potash prices.
Brazil imports around 3.6 million tonnes of potash annually from Russia and 2.4 million tonnes of potash from Belarus – versus 4.2 million tonnes from Canada, with Israel and Germany supplying much of the remainder. At the time of the conference, potash supply to Latin American was continuing as normal, with MOP-laden vessels destined for Brazil still in transit from Russia and Belarus.
With potash supply concentrated in a handful of countries, centres of potash demand such as Brazil rely on all suppliers, said David Riley, Argus’ senior potash analyst. In the event of the loss of Russian and Belarusian supply, Nutrien and Mosaic were, in his view, the only market producers with the ability to step in and make extra potash capacity available. ICL (Israel, Spain) and K+S (Germany, Canada), in contrast, only had a limited ability to ramp-up their potash output.
Argus phosphates editor Harry Minihan drilled down into Brazil’s phosphate market dynamics. Brazil imported 5.1 million tonnes of monoammonium phosphate (MAP) last year. OCP and Russian producers ramped up their deliveries, accounting for around 70 percent of 2021 MAP imports into Brazil. China has also stepped-up its deliveries – exporting 3.25 million tonnes of phosphate products (MAP, NP, TSP) to Brazil last year.
Brazil’s increasing dependence on OCP for its phosphate fertilizer supply has been a clear market trend. The phosphate market’s overall reliance on OCP as a large-scale producer is another talking point currently, as the company is potentially facing ammonia sourcing issues due to the closure of Black Sea supply routes.
With Brazil now entering a critical buying period, seasonality was a key factor in the current price squeeze which has driven up MAP prices to around $1,200/t cfr. Minihan also highlighted the phosphate-nitrogen price link in Brazil, with the country’s MAP price correlating strongly with its urea pricing. Plummeting barter ratios in Brazil were also negatively affecting affordability, he said.
Argus senior analyst Sophie Mason presented a short- and medium-term urea outlook. Although disruption to Russian urea trade was anticipated in the short-term, substantial new urea capacity additions during 2022 and 2023 – particularly in Nigeria and India – were expected to ease market tightness. Chinese urea exports are also set to return to the market.
In the medium-term, around 4.7 million t/a of new Russian urea capacity was now at risk of delays. There was, however, potential for Iran and Brazil to increase their urea output to balance this. The risk of high prices leading to demand destruction was another possibility, in Mason’s view.
Urea plant re-openings
The imminent re-opening of two Brazilian urea plants was highlighted by Luiz Faustino, an executive officer at Unigel. The company already produces 350,000 t/a of ammonium sulphate (AS) – a popular nitrogen fertilizer in Brazil – a by-product of its acrylics production.
Following investment of around $100 million in the mothballed Sergipe and Bahia nitrogen plants, formerly owned by Petrobras, Unigel will soon operate 1.1 million tonnes of urea and 0.9 million tonnes of ammonia production capacity.
These two plants are due to re-start production in April and July this year, respectively. Unigel is also committed to further investment in the construction of a sulphuric acid plant in Brazil. This investment should bring extra AS capacity online.
Faustino believed that Brazil could produce more natural gas and even become self-sufficient. A ramp-up of investment in the domestic gas market would also have the benefit of reducing the country’s dependence on Bolivia, he suggested.
Low- and zero-carbon ammonia opportunities
Nutrien is positioning itself to take advantage of emerging markets for low-carbon ammonia, as Ashley Harris, the company’s VP for environmental performance and innovation explained. These include:
- Ammonia as a substitute for coal-fired power – potentially a 30 million tonne market by 2050
- Ammonia as a marine fuel
- Ammonia as hydrogen carrier – potentially a 550 million tonne market by 2050.
Nutrien has, in fact, been a leading producer of low carbon ammonia for almost a decade through carbon capture and sequestration (CCS) at its North American ammonia plants in Redwater, Alberta and Geismar, Louisiana.
The company’s 535,000 t/a capacity Geismar plant has a >90 percent CO2 capture rate, thanks to access to the Denbury CO2 pipeline. It captures more than 250,000 t/a of CO2 and generates more than 200,000 t/a of low-carbon ammonia. The 925,000 t/a capacity Redwater plant, meanwhile, has a link to the Alberta Carbon Trunk Line. It captures up to 295,000 t/a of CO2 and generates up to 245,000 t/a of low-carbon ammonia.
Nutrien has future plans to ramp up carbon capture to 1.8 million t/a CO2 at Redwater and to more than 600,000 t/a CO2 at Geismar. It is also collaborating with Exmar on an ammonia-fuelled vessel. This will be powered using low-carbon ammonia sourced from its Geismar plant and could be operative as early as 2025.
Carbon farming
The decarbonisation of global farming could reduce annual carbon emissions from agriculture by one gigatonnes, thanks to a shift to regenerative farming. That’s according to Iule Arruda, managing director, Brazil, for Agoro Carbon Alliance.
Agoro Carbon Alliance was formed by Yara in 2021. It is aiming to generate carbon credits as a new revenue stream for farmers globally. Companies in other sectors can then buy these credits to reduce their climate impacts.
Currently, carbon credits from agriculture are mainly sold through the voluntary carbon market (VCM). Carbon credits generated by farm practices such as better nitrogen management, reduced or no-tillage systems and the introduction of cover crops could provide farmers with nearly $90/acre in extra revenues, according to Agoro Carbon Alliance.
RCarbon farming is set to take off in in Latin America with demand for VCMs in the region likely to grow by 100 times by 2050, Arruda suggested. This growth is likely to be accompanied by a move towards higher quality VCMs over time as carbon markets becomes more robust. The demand for government-regulated schemes – compliance carbon markets (CCMs) – is also expected to increase.
