NPK Weekly
10 October 2011 ¦ 12 pages
citigroupgeo.com
Urea Market Weakening; Ethanol Legislation a Wildcard for US
Fertilizer Demand
Urea Price Correction Gaining Momentum – US Gulf urea prices dropped 7% this
week and have fallen more than 10% since the mid-September peak due to lower grain
prices and a slowdown in demand from Latin America and SE Asia. Contributing to the
slowdown in Latin American urea demand has been the recent weakening of the
Brazilian Real, which has fallen more than 10% against the dollar since late August,
making urea imports more expensive. In the US, trade publications are reporting that
urea imports during July-October are tracking ~10% below 2010, which could
eventually help support the market given our expectation for strong fall and spring
fertilizer application season. Other key North America fertilizer prices were unchanged
this week, with Central Florida DAP at $588/st and Saskatchewan potash at $540/st.
Potential Ethanol Legislation a Key Risk to Fertilizer Demand – This week bi-
partisan legislation was introduced in the US House of Representatives which could
reduce the Renewable Fuels Standard (ethanol mandate) in circumstances when US
corn stocks are tight. The proposed legislation would take effect when US corn stocks-
to-use ratios fall below 10% at which point the ethanol mandate would be reduced by
10%. If corn stocks-to-use become even tighter, the mandate could be reduced further.
Any reduction in ethanol production due to changes in the mandate would be a
negative for the fertilizer industry, particularly for nitrogen producers, as corn requires
the most nitrogen fertilizer of the major North American crops.
CF to Close Methanol Plant – CF announced this week that it will permanently close
the methanol plant at its Woodward, OK facility and will take a $35mm pre-tax
impairment charge in 3Q. The methanol plant was acquired through the Terra
Industries acquisition in 2010. CF has not produced methanol since 2010 as the
company has maximized ammonia production.
Update on India Potash Ambitions – According to local press reports, the Belarusian
government has given India the right of first refusal regarding the potential sale of
potash producer Belaruskali. The Belarusian government announced that it will sell a
minority stake in the company (~12% of global potash capacity), which it values at
$30B. Additionally, press reports indicate that India is attempting to secure a long-term
potash supply contract with Belaruskali. If India was able to secure a long-term deal it
could be an incremental negative for the major potash exporters.
Brazil to Lower Fertilizer Taxes – According to the Brazil Mining Ministry, the country
is planning to reduce fertilizer royalties in an attempt to accelerate domestic production
expansions, particularly for potash. Fertilizer royalties are currently 3%. Brazil year-to-
date imports have increased 54% to 5.3mmt.
Crop Progress Update – For the week ending October 2 the USDA rated 52% of the
corn crop in “excellent” or “good” condition, unchanged from last week and 14
percentage points below this week last year. For soybeans, the USDA rated 54% of the
crop in “excellent” or “good” condition, 1 percentage point above the previous week but
10 percentage points below this week in 2010 |
