Market Overview Southwestern Fertilizer Conference July 2017
Forward Looking Statements This presentation contains forward-looking statements" (within the meaning of the US Private Securities Litigation Reform Act of 1995) or forward-looking information (within the meaning of applicable Canadian securities legislation) that relate to future events or our future performance. These statements can be identified by expressions of belief, expectation or intention, as well as those statements that are not historical fact. These statements often contain words such as should, could, expect, forecast, may, anticipate, believe, intend, estimates, plans and similar expressions. These statements are based on certain factors and assumptions as set forth in this document, including with respect to: foreign exchange rates, expected growth, results of operations, performance, business prospects and opportunities, including the completion of the proposed merger of equals with Agrium, and effective tax rates. While we consider these factors and assumptions to be reasonable based on information currently available, they may prove to be incorrect. Forward-looking statements are subject to risks and uncertainties that are difficult to predict. The results or events set forth in forward-looking statements may differ materially from actual results or events. Several factors could cause our actual results or events to differ materially from those expressed in forward-looking statements including, but not limited to, the following: our proposed merger of equals transaction with Agrium, including the failure to satisfy all required conditions, including required regulatory approvals, or to satisfy or obtain waivers with respect to all other closing conditions in a timely manner and on favorable terms or at all; the occurrence of any event, change or other circumstances that could give rise to the termination of the arrangement agreement; certain costs that we may incur in connection with the proposed merger of equals; certain restrictions in the arrangement agreement on our ability to take action outside the ordinary course of business without the consent of Agrium; the effect of the announcement of the proposed merger of equals on our ability to retain customers, suppliers and personnel and on our operating future business and operations generally; risks related to diversion of management time from ongoing business operations due to the proposed merger of equals; failure to realize the anticipated benefits of the proposed merger of equals and to successfully integrate Agrium and PotashCorp; the risk that our credit ratings may be downgraded or there may be adverse conditions in the credit markets; the results of our impairment assessment regarding the carrying value of certain assets; variations from our assumptions with respect to foreign exchange rates, expected growth, results of operations, performance, business prospects and opportunities, and effective tax rates; fluctuations in supply and demand in the fertilizer, sulfur and petrochemical markets; changes in competitive pressures, including pricing pressures; risks and uncertainties related to any operating and workforce changes made in response to our industry and the markets we serve, including mine and inventory shutdowns; adverse or uncertain economic conditions and changes in credit and financial markets; economic and political uncertainty around the world; changes in capital markets; the results of sales contract negotiations within major markets; unexpected or adverse weather conditions; risks related to reputational loss; the occurrence of a major safety incident; inadequate insurance coverage for a significant liability; our inability to obtain relevant permits for our operations; catastrophic events or malicious acts, including terrorism; certain complications that may arise in our mining process, including water inflows; risks and uncertainties related to our international operations and assets; our ownership of non-controlling equity interests in other companies; our prospects to reinvest capital in strategic opportunities and acquisitions; risks associated with natural gas and other hedging activities; security risks related to our information technology systems; imprecision in reserve estimates; costs and availability of transportation and distribution for our raw materials and products, including railcars and ocean freight; changes in, and the effects of, government policies and regulations; earnings and the decisions of taxing authorities which could affect our effective tax rates; increases in the price or reduced availability of the raw materials that we use; our ability to attract, develop, engage and retain skilled employees; strikes or other forms of work stoppage or slowdowns; rates of return on, and the risks associated with, our investments and capital expenditures; timing and impact of capital expenditures; the impact of further innovation; adverse developments in pending or future legal proceedings or government investigations; and violations of our governance and compliance policies. These risks and uncertainties are discussed in more detail under the headings Risk Factors and Management s Discussion and Analysis of Results and Operations and Financial Condition in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016 and in other documents and reports subsequently filed by us with the US Securities and Exchange Commission and the Canadian provincial securities commissions. Forward-looking statements are given only as of the date hereof and we disclaim any obligation to update or revise any forward-looking statements in this release, whether as a result of new information, future events or otherwise, except as required by law.
EXECUTIVE SUMMARY Grain and oilseed markets rallied in early July as weather challenges in North America emerged. We believe that current fertilizer and crop price levels provide strong affordability and incentivizes farmers to supply the necessary crop nutrients to achieve highyields. Potash deliveries were strong during the first half of 2017 and global supply and demand fundamentals continued to tighten. Potash prices have further strengthened in most markets since the beginning of 2017 on improved demand and lower inventory levels. We expect improved consumption trends and nutrient affordability in key markets to support potash demand through the remainder of 2017 and estimate global potash shipments will range between 61-64 million tonnes. The majority of planned nitrogen capacity additions in the US and globally have come online which resulted in shifting global trade patterns. We see 2017 as a transition year for the nitrogen market as capacity additions will begin to slow and US reliance on imports declines further. We don t expect any significant newly announced capacity to be added before 2020. Phosphate markets improved in 2017 from mid first-quarter through to the middle of second-quarter due to strong demand coupled with supply disruptions. Although softening seasonally, Latin America and Asia demand is expected to provide an outlet during the third-quarter. As new lower-cost phosphate expansion projects in Morocco and Saudi Arabia come online, import demand growth and moderated China s exports are expected to help absorb this new supply. 3
Sustaining year-over-year records in global grain and oilseed production is challenging and current weather concerns in North America and Western Europe could result in yields below trend this production season. Crop prices have improved during recent weeks on production risks and since strong demand across most soft commodities remains, crop buyers have reportedly increased their forward buying. 4
Global food production has risen at an annualized rate in excess of 2 percent over the past 15 years. Demand for crop nutrients, especially potash, continues to be robust as large production removes significant amounts of soil nutrients. Growth has been sustained during periods of changing economic and agriculture market conditions. 5
Globally, the economic incentive for farmers to invest in fertilizer remains highly attractive. We believe fertilizer demand will continue to be supported by strong fertilizer affordability (as noted in the price index above) and the agronomic need to replenish the significant removal of nutrients from the large global harvests in recent years. 6
US farmer returns remain near the long-term average with growers expected to generate positive margins above their operating and land costs in 2017. The above charts depict the US national average estimates. In years of regional weather variability, the variance in crop returns increases between regions. 7
US 2017/18 growing season weather has been better in the Central and Eastern Corn Belt, but less favorable in the Western and Northwestern Corn Belt where dry weather has drawn down soil moisture. The long range forecast is concerning for the Western and Northwestern region as hot and dry weather could be present during the critical pollination period for corn. Results from a long-term P and K rate study from Ohio State University on a corn/soybean rotation showed a dramatic response to elevated K levels as a means of combating drought effects on yields. For more important research on soil health and fertility check out www.potashcorp-ekonomics.com 8
Potash prices have further strengthened in most markets since the beginning of 2017 on improved demand and lower inventory levels. Prices in Brazil have risen by nearly $50/mt compared to the same time last year, a reflection of robust potash consumption. 9
Customer engagement in key spot markets remains steady including in North America, where demand is largely supported by the need to replenish soil nutrients following 2016 s record harvest. In Latin America, despite fertilizer affordability becoming less favorable from the beginning of the year, we expect strong crop production needs will continue to support a positive demand environment. In Other Asian markets, improved moisture conditions and favorable economics for key crops such as oil palm should support demand growth. We maintain our global shipments estimate of 61-64 million tonnes for 2017, above the approximately 60 million tonnes shipped in 2016. 10
In 2017, lower corn and wheat acres was more than offset by strong potash demand for soybeans, cotton and certain other crops. Total North American potash shipments in 2017 are expected to outpace the historical average with many distributors reporting higher potash sales compared to last year. Despite record offshore imports into the US, we believe that most distributors have finished the spring season with low inventory in the supply chain. We anticipate continued strength into the second half of 2017 given strong affordability and the expectation for a good fall application season. 11
We expect global potash operational capability will increase by approximately 2.2 million tonnes in 2017, considering the potash additions and the operations slated to shut down or be temporarily curtailed. We believe the expansion of our Rocanville mine, which completed its ramp-up in the first half of 2017, positions us well to respond to growing customer demand. 12
The start-up of new global nitrogen capacity, lower energy costs and favorable foreign exchange in certain key nitrogen exporting regions continue to pressure global nitrogen markets. After a moderate recovery in late 2016 (early 2017) following curtailments and permanent shutdown of some marginal producers, newly constructed capacity continues to weigh on near-term market fundamentals. 13
The build-out of North American nitrogen capacity is nearly complete. With ten nitrogen projects now operational and construction on five slated to be finished in the next 9 months, expect pressure in this market through the remainder of 2017. Three of the five remaining projects will increase urea capacity disproportionality to ammonia, partially offsetting the supply effect of standalone ammonia projects. Following this build-out, there will be no other US nitrogen projects under construction which will help support the market. Globally, there are no UAN projects under construction. 14
In the past two years, US capacity grew faster than demand thereby increasing pressure on import suppliers. This is causing import volumes into the US market to decrease. We expect imports will continue to decline, displacing highercost suppliers, likely resulting in market volatility through the transition period. 15
The US has been a major contributor to global nitrogen capacity growth, accounting for 42 percent of new capacity in 2017. Recent greenfield projects have taken over 3 years from construction to completion, therefore, we don t expect newly announced projects to affect nitrogen supply until after 2020. Capacity growth is expected to slow post-2017 and demand growth is expected to help begin restoring equilibrium to the nitrogen market. 16
Following a challenging 2016, phosphate prices moved higher in early 2017 due to strong demand, shipping delays and planned turnarounds. A lower than expected Indian GST rate (5 percent versus expectation of 12 percent) and the return of Latin American importers are key support factors to watch for Q3. On the supply side, the key factor to watch in 2017 is the ramp-up of new export supply, namely OCP and Ma aden. 17
During periods of strong seasonal buying in the US, offshore imports have historically surged to meet in-season demand. With the long-term production trend in the US decreasing, exports have declined and have become more concentrated during the US off-season. So far in 2017, we have seen strong demand for phosphates in the US and believe DAP/MAP shipments could approach 7 million tonnes, the upper end of the annual shipment range of 6-7 million tonnes. 18
Global consumption is forecast to grow at approximately 2 percent per year, with healthy growth projected for South Asia and Latin America. Operating rates are expected to be moderate in 2018 with the ramp-up of new export-oriented supply before increasing through the forecast period. The key factor to watch will be how China s recent industry changes and regulations could reduce future supply from that region. Major supply additions post-2018 include the ramp-up at Ma aden plus the continuation of OCP s phosphate capacity investment. 19