December 29, 2014
Brazil: Increased Fertilizer Needs Attract International Investors AgFax.Com - Your Online Ag News Source
By Alastair Stewart South America Correspondent
shareshareshareshare
[iframe style="BORDER-BOTTOM: medium none; BORDER-LEFT: medium none; WIDTH: 78px; HEIGHT: 20px; VISIBILITY: visible; BORDER-TOP: medium none; BORDER-RIGHT: medium none" title="fb:like Facebook Social Plugin" height=1000 src="http://www.facebook.com/v2.0/plugins/like.php?app_id=&channel=http%3A%2F%2Fstatic.ak.facebook.com%2Fconnect%2Fxd_arbiter%2F7r8gQb8MIqE.js%3Fversion%3D41%23cb%3Df18e232453b5d85%26domain%3Dagfax.com%26origin%3Dhttp%253A%252F%252Fagfax.com%252Ff1a219b6dddb603%26relation%3Dparent.parent&href=http%3A%2F%2Fagfax.com%2F2014%2F12%2F29%2Fbrazil-increased-fertilizer-needs-attract-international-investors%2F&layout=button_count&locale=en_US&sdk=joey&send=false&show_faces=false" frameBorder=0 width=1000 allowTransparency name=f1c09fa23474ab6 scrolling=no][/iframe]
[iframe style="POSITION: static; BORDER-BOTTOM-STYLE: none; BORDER-RIGHT-STYLE: none; MARGIN: 0px; WIDTH: 24px; BORDER-TOP-STYLE: none; HEIGHT: 15px; VISIBILITY: visible; BORDER-LEFT-STYLE: none; TOP: 0px; LEFT: 0px" id=I0_1419970206141 title=+1 tabIndex=0 marginHeight=0 src="https://apis.google.com/se/0/_/+1/fastbutton?usegapi=1&size=small&count=false&origin=http%3A%2F%2Fagfax.com&url=http%3A%2F%2Fagfax.com%2F2014%2F12%2F29%2Fbrazil-increased-fertilizer-needs-attract-international-investors%2F&gsrc=3p&ic=1&hostiemode=8&jsh=m%3B%2F_%2Fscs%2Fapps-static%2F_%2Fjs%2Fk%3Doz.gapi.en.j1QholfdnmY.O%2Fm%3D__features__%2Fam%3DAQ%2Frt%3Dj%2Fd%3D1%2Ft%3Dzcms%2Frs%3DAGLTcCP1BSvtxoI3E2wzG7twjHbDrCUuHA#_methods=onPlusOne%2C_ready%2C_close%2C_open%2C_resizeMe%2C_renderstart%2Concircled%2Cdrefresh%2Cerefresh&id=I0_1419970206141&parent=http%3A%2F%2Fagfax.com&pfname=&rpctoken=9475945" frameBorder=0 width="100%" allowTransparency name=I0_1419970206141 marginWidth=0 scrolling=no data-gapiattached="true"][/iframe]
The robust expansion in Brazilian grain farming will continue to drive local fertilizer demand for the next few years, necessitating a rise in imports.
Brazilian NPK demand is growing at a consistent 4% per year, double the global average, while faltering investment in domestic capacity means local production will do no more than keep pace.
“In truth, (investment) will only be sufficient to maintain imports at current percentages,” said George Bonifacio e Sousa, president of the Brazilian Fertilizer Distributors’ Association (ANDA) at a recent event.
Back in 2009, then-President Luiz Inacio Lula da Silva announced a drive to become self-sufficient. He thought it strategically unwise for Brazil, as a leading food supplier, to rely on unpredictable countries like Russia for inputs.
In order to achieve his goal, Lula goaded state oil giant Petrobras and government-linked miner Vale into announcing huge nitrogen and potassium investments.
Unfortunately, the drive has had little impact on the percentage of fertilizers imported, which has held steady at around 70% for the last five years. The main reason for the lack of impact is that depressed fertilizer prices prompted companies to put investments on hold.
So while the Brazilian fertilizer industry has a pipeline of $13 billion in projects, few are moving forward quickly.
The solution is for the government to lead another push to invest, according to Jose Carlos Polidoro, vice-leader at Rede BrasilFert, a government fertilizer research group.
PETROBRAS, VALE STYMIED
That’s fine in theory. In practice, the companies that would implement the plans are in no great shape to embark on multi-billion-dollar projects that offer doubtful returns.
Petrobras is currently mired in a massive corruption scandal that promises to freeze investment budgets for a long time to come. The construction of ammonia plants is low on its list of priorities.
Meanwhile, Vale is also struggling, due to the global downturn in metals prices, and doesn’t have much stomach for phosphate or potassium projects that promise questionable returns.
In the longer term, nitrogen independence may be possible as Brazil has potentially large ultra-deep sea gas reserves to exploit. That won’t begin happening until the next decade, though.
Phosphate independence could also be achieved some day, if prices recover.
Potassium self-sufficiency is probably out of Brazil’s grasp, though.
Brazil last year imported 96% of its potash requirements and has few exploitable reserves. Vale is currently developing a carnallite mine in the northeastern state of Sergipe, but that will do no more than replace declining output from a neighbouring site.
The great hope was the development of the Rio Colorado potash deposit in Argentina, but Vale has turned its back on the planned $6 billion investment amid soaring costs and the difficulty in negotiating with the government there. Without this project, Brazil will continue to import nearly all its potash from outside of South America.
ACTIVITY HIGH IN MERGERS AND ACQUISITIONS
But while investment in fertilizer production capacity is slow, mergers and acquisitions activity is high as international firms seek to get a piece of Brazil’s fast-growing market.
At the start of December, Norway’s Yara bought a 60% stake in Galvani, an integrated Brazilian fertilizer firm. At the same time, Japan’s Mitsubishi acquired a 13% stake in Peninsula Fertilizantes, a local fertilizer distributor. Earlier in the year, Morocco’s OCP bought a 10% stake in Heringer, a Brazilian fertilizer firm, with a view to improving its access to the local phosphate market.
International investors are interested in tapping into the demand generated by the steady expansion of grain, and in particular, soybean farming across the Cerrado, Brazil’s savanna region.
The value of the market can be seen in this year’s fertilizer sales figures. While fertilizer demand is weak across the world amid a slump in commodity prices, Brazilian sales rose 5.7%, to 27.5 million metric tons, in the first 10 months of 2014. |
