Plant Nutrients and Plant Nutrient Markets

Transcription

1 Chemicals for the Non-Chemist Plant Nutrients and Plant Nutrient Markets Citi Basic Materials Conference New York, NY November 26, 2017 Andy J. Jung Senior Director, Market and Strategic Analysis 1

2 Safe Habor This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of Such statements include, but are not limited to, statements about the anticipated benefits and synergies of our acquisition of the global phosphate and potash operations of Vale S.A. previously conducted through Vale Fertilizantes S.A. (which, when combined with our legacy distribution business in Brazil, is now known as Mosaic Fertilizantes) (the Transaction ), other proposed or pending future transactions or strategic plans and other statements about future financial and operating results. Such statements are based upon the current beliefs and expectations of The Mosaic Company s management and are subject to significant risks and uncertainties. These risks and uncertainties include, but are not limited to: difficulties with realization of the benefits and synergies of the Transaction, including the risks that the acquired business may not be integrated successfully or that the anticipated synergies or cost or capital expenditure savings from the Transaction may not be fully realized or may take longer to realize than expected, including because of political and economic instability in Brazil or changes in government policy in Brazil such as costs associated with the new freight tables; the predictability and volatility of, and customer expectations about, agriculture, fertilizer, raw material, energy and transportation markets that are subject to competitive and other pressures and economic and credit market conditions; the level of inventories in the distribution channels for crop nutrients; the effect of future product innovations or development of new technologies on demand for our products; changes in foreign currency and exchange rates; international trade risks and other risks associated with Mosaic s international operations and those of joint ventures in which Mosaic participates, including the performance of the Wa ad Al Shamal Phosphate Company (also known as MWSPC), the ability of MWSPC to obtain additional planned funding in acceptable amounts and upon acceptable terms, the timely development and commencement of operations of production facilities in the Kingdom of Saudi Arabia, and the future success of current plans for MWSPC and any future changes in those plans; the risk that protests against natural resource companies in Peru extend to or impact the Miski Mayo mine, which is operated by an entity in which we are the majority owner; difficulties with realization of the benefits of our long term natural gas based pricing ammonia supply agreement with CF Industries, Inc., including the risk that the cost savings initially anticipated from the agreement may not be fully realized over its term or that the price of natural gas or ammonia during the term are at levels at which the pricing is disadvantageous to Mosaic; customer defaults; the effects of Mosaic s decisions to exit business operations or locations; changes in government policy; changes in environmental and other governmental regulation, including expansion of the types and extent of water resources regulated under federal law, carbon taxes or other greenhouse gas regulation, implementation of numeric water quality standards for the discharge of nutrients into Florida waterways or efforts to reduce the flow of excess nutrients into the Mississippi River basin, the Gulf of Mexico or elsewhere; further developments in judicial or administrative proceedings, or complaints that Mosaic s operations are adversely impacting nearby farms, business operations or properties; difficulties or delays in receiving, increased costs of or challenges to necessary governmental permits or approvals or increased financial assurance requirements; resolution of global tax audit activity; the effectiveness of Mosaic s processes for managing its strategic priorities; adverse weather conditions affecting operations in Central Florida, the Mississippi River basin, the Gulf Coast of the United States, Canada or Brazil, and including potential hurricanes, excess heat, cold, snow, rainfall or drought; actual costs of various items differing from management s current estimates, including, among others, asset retirement, environmental remediation, reclamation or other environmental regulation, Canadian resources taxes and royalties, or the costs of the MWSPC, its existing or future funding and Mosaic s commitments in support of such funding; reduction of Mosaic s available cash and liquidity, and increased leverage, due to its use of cash and/or available debt capacity to fund financial assurance requirements and strategic investments; brine inflows at Mosaic s Esterhazy, Saskatchewan, potash mine or other potash shaft mines; other accidents and disruptions involving Mosaic s operations, including potential mine fires, floods, explosions, seismic events, sinkholes or releases of hazardous or volatile chemicals; and risks associated with cyber security, including reputational loss; as well as other risks and uncertainties reported from time to time in The Mosaic Company s reports filed with the Securities and Exchange Commission. Actual results may differ from those set forth in the forward-looking statements. 2

3 The Mosaic Company 3

4 High Quality Asset Portfolio Largest global finished phosphate and potash producer #1 Phosphate capacity of 16 million tonnes #4 Potash capacity of 11 million tonnes #1 Premium fertilizer producer Distribution assets in key markets Global potash sales through Canpotex Phosphate Production Potash Production Distribution Facilities Joint Ventures 4

5 Focused on The Americas Home base in North America: 74% of NA phosphate production In a 10 million tonne phosphate market: o MicroEssentials sales of 1.6 mmt(1) o Total phosphate sales of 4.5 mmt(1) 39% of 2017 NA MOP production Leading position in Brazil: Solidified through 2018 acquisition of Vale Fertilizantes Total sales of 9 mm tonnes(2) in a 35 mm tonne market Largest in-country producer Logistically advantaged production Port ownership and access 5 (1) 2018 forecast; (2) midpoint of 2018 guidance

6 Plant Nutrients and Plant Nutrient Products 6

7 Plant Nutrients Plant nutrients are plant food (and common chemical elements) 17 chemical elements are required for plant growth N-P-K: the carbohydrates-protein-fat in a plant s diet Growing importance of secondary nutrients and micronutrients especially in high yield systems Justus von Liebig and the Law of the Minimum Liebig s Barrel 7

8 Plant Nutrient Products Plant nutrients are contained in a variety of plant nutrient products Much like nutrients for animals are contained in a variety of feed ingredients Each plant nutrient product is identified by three numbers Referred to as its analysis (check it out on your next bag of lawn fertilizer) Percentage of each primary nutrient contained in a unit of the product Plant Nutrient Analysis ## - ## - ## N Urea P K Diammonium Phosphate (DAP) Muriate of Potash (MOP)

9 Positive Demand Drivers Near Term Record Harvests Have Removed Record Amounts of NPK Estimated World Grain & Oilseed Nutrient Removal Agronomic Need to replenish NPK removed by record harvests nutrient removal from grain and oilseed crops is nearly 20% higher than it was just a few years ago Focus on nutrient use efficiency and balanced nutrient use Mil Tonnes N Removal P2O5 Removal Stoop Stoop (2.7 bmt p.a.) (3.2 bmt p.a.) K2O Removal 18.7 Change Percent Change 19.9% 18.3% % 22.4 Source: USDA, IPNI, Mosaic Affordable Nutrients Underpin Demand Growth Economic Still OK agricultural commodity prices + More stable NPK prices = Still affordable plant nutrients Plant Nutrient Affordability Plant Nutrient Price Index / Crop Price Index Source: Weekly Price Publications, CME, USDA, AAPFCO, Mosaic Less Affordable More Affordable Affordability Metric Average 2010-present 18 9

10 Positive Demand Drivers Medium to Long Term The stocks-to-use percentage is projected to decline to just 16.2% by the end of the 2018/19 crop year, a level that correlates with spikes in crop prices that occurred in 2003/04, 2007/08 and 2012/13. The Food Story is not in vogue today but still intact the world will continue to need to plant more area and increase yields to meet grain and oilseed demand. The Food Story Not in Vogue Today But Still Intact Mil Tonnes World Less China Grain and Oilseed Stocks Percent 22% Source: USDA November 8, % % % % % % % % % 12% F Crop Year Beginning in Stocks S:U Percent Low 16% High 19% 10

11 Demand Challenge: Maintaining Soil Fertility AND Safeguarding the Environment Soil fertility is maintained by replenishing the nutrients removed by crops each year Farmers maintain soil fertility and safeguard the environment by following best practices and the 4-Rs Best practices Soil testing Plant nutrient accounting Variable rate technology Multiple applications Nitrogen inhibitors and controlled release products The 4-Rs of nutrient stewardship Right Source - Right Rate - Right Time - Right Place Nutrient Removal by Crop P2O5 lbs Acre N Corn Bu Acre Yield Grain Stalks Total K2O S Soybeans - 70 Bu Acre Yield Grain Stover Total Wheat - 80 Bu Acre Yield Grain Straw Total Source: IPNI 11

12 Increasing Efficacy of Plant Nutrient Use U.S. Phosphate Use Efficiency on Corn U.S. Potash Use Efficiency on Corn lbs K2O per Bu 1.5 lbs P2O5 per Bu lbs N per Bu U.S. Nitrogen Use Efficiency on Corn P2O5 use per bushel of corn dropped 68% from 0.88 pounds in 1970 to 0.30 pounds in N use per bushel of corn harvested declined 44% from 1.45 pounds in 1970 to 0.83 pounds in Source: USDA Source: USDA Source: USDA The average U.S. corn yield increased 120% from 79 bushels per acre in 1970 to 175 in Yet primary nutrient application rates remained flat at about 230 pounds per acre during the same period The efficacy of plant nutrient use has increased significantly in the United States during the last few decades Manure usage has increased during this period, but U.S. farmers today are harvesting more than twice as much corn per acre with the same amount of commercial plant nutrients applied per acre as in 1970! K2O use per bushel of corn also dropped 65% from 0.85 pounds in 1970 to 0.31 pounds in

13 Primary Nutrient Overview: Nitrogen (N) Production process: highly energy intensive Haber-Bosch process to synthesize ammonia (NH3) from inert atmospheric N and H Key input: hydrocarbon feedstock (~three-quarters produced from natural gas) 2018 global use estimates (IFA) Agricultural: ~107 million tonnes N or ~300 million tonnes final N products Industrial/Other: ~41 million tonnes N or ~100 million tonnes final N products CAN 3% Ammonia 4% AMS 3% Other 20% N Use By Product UAN 5% AMN 6% DAP/MAP 9% Urea 50% Leading downstream nitrogen products produced from ammonia Direct application ammonia (82% N gas at normal temperatures and pressures) Urea (46% N solid) Urea-ammonium nitrate (UAN) solution (28%-32% N liquid) Ammonium nitrate (34% N solid) Ammonium sulphate (21% N solid) Ammonium phosphate (DAP and MAP) products (10%-18% N solid) NPK/NP/NPS/NK compounds (% N varies both solid and liquid) Leading producers: China, Russia, India, North America, Middle East Corn & Other Coarse Grains 23% Other 23% Oilseeds 8% N Use By Crop Fruits & Veg. 14% Wheat 18% Rice 15% Source: IFA, CRU, Fertecon and Mosaic 13

14 Global Ammonia Production Ammonia Production 2018 China Russia India USA Indonesia Mil Tonnes NH3 Source: CRU Hydrocarbon Feedstocks Other 1% Naphtha 1% Natural Gas 75% Fuel Oil 1% Coal 22% Source: IFA 14

15 Nitrogen 2018 Trade Flows (Urea) 15

16 Nitrogen Factors to Watch Chinese urea production and exports Indian policies Nitrogen subsidy Make-in-India initiatives (restart idled plants) Coal prices Environmental regulations Demand drivers Agricultural commodity prices Nitrogen use efficiency improvements, especially in China and India Mil Tonnes China Urea Exports $ Tonne 14 Source: China Customs, Mosaic Q1-Q3 Granular Urea Prices Source: FMB 150 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 fob NOLA Barge fob Mideast Vessel 16

17 Nitrogen Factors to Watch Feedstock Costs Absorption of new capacity Divergence of European gas costs in 2018 $ MM Btu Natural Gas Costs in Key N-Producing Regions Estimated Annual Average Price USA a new normal develops Elsewhere Mil Tonnes 18 U.S. Gross Ammonia Production Source: Fertecon Source: Fertecon F Mideast (Low) United States Russia Europe (Formula) Ukraine Europe (Spot Hub) F 17

18 Primary Nutrient Overview: Phosphorus (P) Other 5% Production process - making phosphorus water soluble Key inputs: phosphate rock mineral ore, sulphur and ammonia NPKs 24% Intermediate product used to produce most final products: phosphoric acid Integrated vs. non-integrated production (e.g. Morocco vs. India) SSP 9% P Use By Product DAP/MAP/NPS/ TSP 62% 2018 global use estimates (IFA) Agricultural: ~46 million tonnes P2O5 or ~148 million tonnes final P products Feed/Industrial/Other: ~7 million tonnes P2O5 or ~15 million tonnes final P products Main phosphate products Diammonium phosphate (DAP) (46% P2O5 solid) Monoammonium phosphate (MAP) (52% P2O5 solid) Triple superphosphate (TSP) (46% P2O5 solid) Single superphosphate (SSP) (18%-22% P2O5 solid) NPK/NP/NPS/PK compounds (% P2O5 varies both solid and liquid) Corn & Other Fruits & Veg. Coarse Grains 19% 18% Other 21% P Use By Crop Rice 13% Oilseeds 16% Wheat 15% Leading producers: China, USA, Morocco, Russia, Saudi Arabia, Brazil Source: IFA, CRU, Fertecon and Mosaic 18

19 Global Phosphate Rock Reserves Country Mil Tonnes Percent of Total Cumulative Percent Morocco 50, China 3, Algeria 2, Syria 2, Brazil 1, South Africa Saudi Arabia 1, , Egypt 1, Jordan 1, Australia 1, Other 4, World 70, Global reserves equal to more than 250 years of production at current rates. 19

20 Global Phosphate Rock Production Phosphate Rock Production 2018 China USA Morocco Russia Jordan Mil Tonnes Source: CRU 20

21 Key 2018 Phosphate Trade Flows (DAP/MAP/TSP) 21

22 Phosphate Stripping Margin Has Improved $ Tonne Benchmark DAP Stripping Margin Calculated from Published Weekly Spot Prices 350 The benchmark DAP margin increased $77 per tonne from November 2, 2017 to September 20, Normal seasonal factors have pressured margins in Q4, but margins have declined during this quarter in each of the last five years Margins typically rebound in Q1, also due to seasonal factors. Source: Argus, Mosaic 200 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 We calculate a DAP benchmark stripping margin from published spot prices for DAP, sulphur and ammonia. It is a gauge that registers fundamental changes in the phosphate market over time and is not intended to approximate Mosaic s realized margins. 22

23 The pace of demand growth has picked up MMT Product DAP/MAP/NPS/TSP Global Phosphate Shipments 72.5 This ramp up has occurred while India, and particularly China, have acted as a drag on global demand: Source: CRU and Mosaic Excluding China, demand increased 5.0% or 2.5 million tonnes in We project shipments outside China will increase 2.8% or 1.5 million tonnes this year F 23

24 Phosphate Factors to Watch Chinese production and exports Market-driven restructuring Environmental regulations Mil Tonnes DAP/MAP/TSP Sulphur $ LT 175 Source: China Customs, Mosaic Saudi Arabia (MWSPC) Morocco (JPH 3 & JPH 4) 4 Brazil keeps growing plus gains elsewhere Agricultural commodity prices Balanced nutrient use initiatives c&f Tampa 10 6 Demand trends / drivers Weekly Raw Materials Prices Ammonia $ Tonne Ramp-up of new capacity Raw materials costs China Phosphate Exports Source: Argus Jan-14 Jan-16 Ammonia Phosphate Shipments by Region MMT Product DAP/MAP/NPS/TSP 25 Jan-15 Jan-17 Jan-18 Sulphur 40.0 Mil Tonnes Brazil Total Plant Nutrient Shipments Product 37.5 Source: ANDA, Mosaic Source: CRU and Mosaic 13 India China E Rest of World F 24

25 Summary of 2018 Expected S/D Changes 2018 Expected Phosphate Supply and Demand Changes Demand Growth Plant City Idle OCP Ramp MWSPC Ramp Other Changes China High Exports -0.2 China Medium Exports China Low Exports -2.0 Mil Tonnes DAP/MAP/NPS/TSP Preliminary data on supply and demand changes this year shows a small deficit as the idling of Plant City in particular tightened the S/D Deficit Surplus 25

26 Summary of 2019 Expected S/D Changes 2019 Expected Phosphate Supply and Demand Changes Demand Growth Nutrien Closures OCP Ramp Projected changes in supply and demand likely will result in another deficit in 2019, with Chinese exports the biggest swing factor 0.80 MWSPC Ramp 0.50 Other Changes 0.57 China High Exports China Medium Exports China Low Exports Mil Tonnes DAP/MAP/NPS/TSP Deficit Surplus 26

27 China Phosphate Exports: 2019 Bullish Bias Yichang City Case Study Yangtze River Anhui The Yangtze River basin accounts for nearly all of China s phosphate rock and about 90% of its finished phosphate production. Yichang City Hubei Sichuan Guizhou Yunnan Hubei is the largest phosphate rock producing province, accounting for about one-third of China s total production. Yichang City home of the Three Gorges Dam has 20 million tonnes of rock mining capacity and 6.0 million tonnes of DAP/MAP capacity (note that a city is comparable to a U.S. county). 27

28 China Phosphate Exports: 2019 Bullish Bias Yangtze River Anhui Yichang City Hubei Sichuan Guizhou Yunnan Based on ecological factors, the Yichang City government in 2015 classified area within the river basin as Prohibited (orange), Controlled (yellow) or Optimizing (green). In October 2017, the Yichang City government decreed that all industrial activities in Prohibited areas must stop by the end of The government expected that phosphate rock output would decline 30% already in 2018, forcing some producers to purchase more expensive rock from faraway producers or shut down. Our team in Beijing visited Yichang City earlier this year and assessed that about two-thirds of the 6.0 million tonnes of DAP/MAP capacity in Yichang City is at risk of closure by the end of Stay tuned 2019 could be a watershed for the Chinese industry. 28

29 Primary Nutrient Overview: Potassium (K) Production process: separation processes involving no chemical reaction For sylvinite ore, potassium chloride typically is separated from sodium chloride using conventional flotation technologies KCl 70% K Use By Product Key input: potash mineral ore (sylvinite, carnallite and langbeinite) Shaft mines (up to meters deep accounting for ~70% production) Solution mines (accounting for ~4% of production) Surface brines (e.g. Dead Sea, Qinghai and Great Salt Lake and accounting for ~26% or production) NPKs 18% KS 9% 2017 global use estimates (IFA) KMS/Other 3% Agricultural: ~39 million tonnes K2O or ~105 million tonnes final K products Industrial/Other use: ~7 million tonnes K2O or ~12 million tonnes final K products Oilseeds 23% Main potash products K Use By Crop Potassium chloride (KCl) AKA muriate of potash (MOP) (60-62% K2O solid) Potassium sulphate (KS) AKA sulphate of potash (SOP) (50% K2O solid) Potassium-magnesium-sulphate (KMS) (22% K2O solid & typically sold as a branded product) Leading producers: Canada, Russia, Belarus, China, Germany, Israel Fruits & Veg 19% Other 23% Wheat 7% Rice 11% Corn & Other Coarse Grains 17% Use in 2010/11 Source: IFA, CRU, Fertecon and Mosaic 29

30 Global Potassium Mineral Reserves Percent of Total Cumulative Percent Country Mil Tonnes K2O Canada 1, Belarus Russia China Israel Jordan USA Chile Germany Other World 3, The largest producing countries possess large reserves. Most new supplies have or will come from brownfield expansions by current producers or a few greenfield projects by new entrants in Canada, Russia and Belarus. The three largest producing countries account for nearly two-thirds of global reserves and have roughly years of reserves at current production rates Global reserves equal to more than 90 years of production at current rates. 30 Source: USGS, 2018.

31 Global Potassium Chloride Production MOP Production 2018 Canada Russia Belarus China Israel Mil Tonnes KCl 31

32 Key 2018 Potash Trade Flows (MOP) 32

33 Prices trend upward driven by strong demand Potash Prices $ Tonne KCl Source: Argus Jan-14 Jan-15 fob NOLA Global Potash Shipments Mil Tonnes KCl Source: IFA, CRU and Mosaic Jan-16 fob U.S. Corn Belt Jan-17 Jan-18 c&f Brazil c&f SE Asia Strong broad-based demand growth Cumulative impact of production changes Slower-than-expected ramp up of new capacity F 19F Global potassium chloride (KCl) shipments are projected to increase to 67 million tonnes this year Shipments are forecast to increase to ~68 million tonnes in 2019 Global shipments increased at a CAGR of 3.1% from , though growth was inconsistent (shipments in 3 years, in 4) 33

34 Potash Factors to Watch Further industry optimization/restructuring Closures due to depleted resources, inflows or economics Ramp-up of new greenfield capacity Canada (K+S Bethune) Russia (EuroChem Usolskiy and Volgakaliy) Mil Tonnes KCl Expected Production From Greenfield Projects Exchange rates Further strong broad-based demand gains Demand drivers Agricultural commodity prices Balanced nutrient use initiatives Index Key Potash Exporter Exchange Rates 2014 Q1= Source: Mosaic Estimates K+S Bethune E 19F 20F 21F 22F 23F EuroChem Usolskiy+Volgakaliy Turkmenistan Garlyk Source: CRB 40 Jan-14 Jan-15 Jan-16 Russian/Belarusian Ruble Jan-17 Jan-18 Canadian Dollar Euro 34

35 The market tightens in Expected Potash Supply and Demand Changes Demand Growth Inventory Draw 0.50 Changes/Outages Bethune Ramp Usolskiy Ramp 0.30 Other Ramps -1.8 Preliminary data on supply and demand changes this show a moderate deficit, as the ramp up of new mines under-delivered on market expectations Mil Tonnes KCl Deficit Surplus 35

36 The market is expected to remain snug in Expected Potash Supply and Demand Changes Demand Growth Sigmundshall Closure Changes/Outages Bethune Ramp 0.50 Usolskiy/Volgakaliy Ramp 0.70 Other Ramps -1.8 Projected changes in supply and demand in 2019 are expected to again result in a deficit, with the pace of the ramp-ups in Russia the biggest swing factor Mil Tonnes KCl Deficit Surplus 36

37 Thank You! Questions? Chemicals for the Non-Chemist Plant Nutrients and Plant Nutrient Markets Citi Basic Materials Conference New York, NY November 26, 2017 Andy J. Jung Senior Director, Market and Strategic Analysis 37