The Potash Outlook Al Mulhall Director, Market Research - PotashCorp TFI Outlook Meeting November 2, 25
Forward-Looking Statements This presentation contains forward-looking statements, which involve risks and uncertainties, including those referred to in the Company s annual report to shareholders for 23 and in filings with the U.S. Securities and Exchange Commission and Canadian provincial securities commissions. A number of factors could cause actual results to differ materially from those in the forward-looking statements, including, but not limited to, fluctuation in supply and demand in fertilizer, sulfur and petrochemical markets; changes in competitive pressures, including pricing pressures; risks associatedated with natural gas and other hedging activities; changes in capital markets; changes in currency and exchange rates; unexpected geological or environmental conditions and government policy changes.
The Potash Outlook Global Fundamentals Global Potash US Fundamentals US Potash
The Potash Outlook Global Fundamentals
N, P & K Outlook Good Fundamentals Declining land per capita Strong economic growth Tight global grain supply/demand balance China having a strong impact on demand for grains, oilseeds and ocean freight Recent commodity price growth
Land Available to Agriculture is Declining.4 Hectares of Arable Land Per Person.3.2.1. 197 198 199 2 21F 22F Source: FAO, PPI, PotashCorp
World Economic Growth 6 % Annual Real GDP Growth 5 Strongest Growth in Over 3 Years 4 3 2 1 1997 1998 1999 2 21 22 23 24E Source: IMF
World Economic Growth 5 Real GDP Growth - % CAGR 4 4.5% 4.3% 3 3.5% 2 1 1999-22 23-26 27-21 Source: IMF
World Grain Production & Consumption Wheat and Coarse Grains 1.7 Billion Tonnes Record Production Above Normal Weather 1.7 1.6 Production Consumption Production Gap 1.6 1.5 1.5 1.4 1.3 1.2 Production Gaps Possibly More Common 1.4 1.3 1.2 1.1 1.1 1. 1. 198/81 1985/86 199/91 1995/96 2/1 25/6F 21/11F Source: USDA, PotashCorp
World Grain Stocks Wheat and Coarse Grains 6 Million Tonnes Year-End Grain Stocks Stocks-to-Use Ratio Percent 4 5 35 4 3 3 25 2 2 17.9% 1 15 73/74 77/78 81/82 85/86 89/9 93/94 97/98 1/2 5/6F 1 Source: USDA
China s s Grain Production & Consumption Wheat and Coarse Grains 28 Million Tonnes Production Forecast Use 24 Production Gap 2 16 12 8 98/99 /1 2/3 4/5 6/7F 8/9F Source: USDA, PotashCorp
China s s Grain Ending Stocks* 24 Million Tonnes Stocks Stocks-to-Use Ratio Stocks-to to-use Ratio 12 2 1 16 8 12 6 8 4 4 2 61/62 65/66 69/7 73/74 77/78 81/82 85/86 89/9 93/94 97/98 1/2 5/6F Source: USDA * Wheat and corn
Agricultural Commodity Prices Index 199 =1 16 15 14 13 12 11 Grains -rice -wheat -maize -sorghum Oilseeds -soybeans -palm oil -coconut oil Beverages -coffee -cocoa -tea Other Food -bananas -oranges -sugar Other Raw Materials -cotton -rubber -wool 1 9-8 7 6 3 Yrs Ago 1 Yr Ago Q3 25 3 Yrs Ago 1 Yr Ago Q3 25 3 Yrs Ago 1 Yr Ago Q3 25 3 Yrs Ago 1 Yr Ago Q3 25 3 Yrs Ago 1 Yr Ago Q3 25 Source: World Bank
US Net Cash Farm Income US $Billions US farmers are beginning to feel the pinch of rising costs but have enjoyed record net cash farm income over the past few years and 25 should be another record or near record year. 9 Net Cash Income Before Gov,t Payments 85.5 85.2 8 Direct Government Payments 71.6 7 6 5 4 3 46. 45.9 43.2 45.3 5.2 51. 43.3 34. 33.8 39.4 38.3 54.4 72.2 63.8 2 1 13.4 9.2 12.2 2.6 22.9 2.7 7.9 7.3 7.3 7.5 11.2 17.2 13.3 21.4 1992 1993 1994 1995 1996 1997 1998 1999 2 21 22 23 24 25E Source: USDA August 25
The Potash Outlook Global Fundamentals Global Potash Outlook
N, P & K Outlook Potash Key Points Industry government ownership The global players Global potash demand growth Regional potash demand growth Global potash production growth FSU & China World supply/demand balance
Industry Structure - Ownership Type Non-Government Ownership 34% 198 25 State-Controlled 66% 14% Government Ownership 86% Publicly Traded or Jointly Held Stock Companies Source: PotashCorp
World Potash Exporters - 24 By Country 18 16 14 Million Tonnes KCl 4% 12 1 Top 3 Exporters (24) = 75% of total exports 8 6 4 2 18% 17% 1% 8% 4% 3% Canada Russia Belarus Germany Israel Jordan Others Source: Fertecon
World Potash Importers - 24 By Country 1 Million Tonnes KCl 9 8 87% Imports as a % of a country s total sales 7 6 84% 91% Top 3 Importers (24) = 53% of total imports 5 4 3 1% 2 1 1% 1% US China Brazil India France Malaysia Source: Fertecon
World Potash Demand Growth 44 4 36 32 28 24 2 Cumulative YOY Percentage Growth 3.6% 1H 25 1.% 3% Growth Rate 2% Growth Rate 16 12 8.3% 8 4 3.% 3.8% -.6% 1999 2 21 22 23 24 25E 26F 27F 28F 29F 21F Source: IFA, PotashCorp
Asia and Latin America Potash Demand Cumulative Growth 12 Million Tonnes KCl Asia Latin America 1 8 +2.8 MMT 6 +3.5 MMT 4 +1.1 MMT 2 1999 2 21 22 23 24 Source: Fertecon
Potash Imports for Selected Countries 25E 1 Million Tonnes KCl 9 8 7 Brazil China Other Asia 6 5 4 India 3 2 1 21 23 25F 21 23 25F 21 23 25F 21 23 25F Source: Fertecon, PotashCorp
Brazilian Real per US Dollar.5 Real per US Dollar.45.4.35.3.25.2 Jul-3 Oct-3 Jan-4 Apr-4 Jul-4 Oct-4 Jan-5 Apr-5 Jul-5 Oct-5 Source: Oanda.com Exchange rates are those in effect on the first day of the month
Cost of Producing Soybeans in Brazil and US US$/Acre Seed Fertilizer Costs Other Variable Land Costs Depn&Other Fixed Costs 3 25 2 15 1 5 $215/acre Brazil (25) Labor, taxes and machinery costs are cheaper in Brazil Land costs have risen sharply with the price of soybeans but are still a fraction of the US Chemicals, fuel cost more than the US including $5/ha to fight Asian Rust Fertilizer costs have risen and are more than the US $255/acre US(25) Excludes a possible extra $25/acre cost for fungicide to fight Asian Rust Source: USDA, Doane, PotashCorp
Potash Imports for Selected Countries 25E 1 Million Tonnes KCl 9 8 7 Brazil China Other Asia 6 5 4 India 3 2 1 21 23 25F 21 23 25F 21 23 25F 21 23 25F Source: Fertecon, PotashCorp
China s s Potash Demand Growth 11 1 9 8 7 6 5 4 3 2 1 Million Tonnes KCl Production Imports 2 21 22 23 24 25F Source: Fertecon, PotashCorp
Canpotex s s Sales Volume 9 8 7 6 5 4 3 2 1 Million Tonnes KCl Records 1978 1981 1984 1987 199 1993 1996 1999 22 25F Source: Canpotex
FSU Potash Sales and Capacity 2 16 Million Tonnes KCl Domestic Sales Export Sales New Capacity 12 8 4 1988 199 1992 1994 1996 1998 2 22 24 Source: Fertecon, PotashCorp
FSU KCl Production 9 8 Million Tonnes KCl Belarus 7 6 5 4 3 2 1 22 23 24 25F Source: Fertecon, IFA, PotashCorp Uralkali 22 23 24 25F Silvinit 22 23 24 25F
North American Producers Ending KCl Inventory 3. Million Tonnes KCl 2.5 2. 1.5 1. 5-Year Average 23 25 24 22 % Below 5-Year Average.5 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: PPI
Selected Nations Potential Potash Growth Million Tonnes KCl 3 China 12 India 12 Brazil 25 1 1 2 8 8 15 6 6 1 4 4 5 2 2 Current Potential Current Potential Current Potential Source: Fertecon, ANDA, PPI-PPICPPIC Note: K 2 O tonnes divided by.61 to convert to KCl tonnes
World Potash Fertilizer Consumption 35 3 Million Tonnes K 2 NAmerica Asia LAmerica WE Africa Oceania EE FSU 25 2 FSU EE 15 WE L America 1 Asia 5 North America 61/62 67/68 73/74 79/8 85/86 91/92 97/98 '3/4 9/1F Actual Forecast Source: FAO, Fertecon
World Potash Operating Rate (%) 1 % of Capacity 9 8 7 6 Actual With PotashCorp Forecast With PotashCorp Actual Without PotashCorp Forecast Without PotashCorp 5 198 1983 1986 1989 1992 1995 1998 21 24 27 21 * excludes capacity additions in planning stage for Thailand, Uralkali, and Mosaic Source: Fertecon, IFA, PotashCorp
Potash Demand Growth versus Capacity: Assumes All Capacity Announcements Completed 14 13 12 11 1 9 8 7 6 5 4 3 2 1 Cumulative Growth - Million Tonnes KCl PotashCorp: Available Capacity PotashCorp Projects Under Review Uralkali Jordan Brazil Germany Israel China Mosaic Agrium 3% Demand Growth 2 % Growth 25E 26F 27F 28F 29F 21F Source: Fertecon, PotashCorp
The Potash Outlook Global Fundamentals Global Potash US Fundamentals
US Crop Acreage Forecast Million Acres Doane s 26 Forecast More wheat and soybeans less corn and cotton due to rising costs and the higher returns to soybeans. Also there is so far little evidence of Asian Rust. 22 23 24 25 26 +/- Corn 78.9 78.6 8.9 81.6 79.8-1.8 All Wheat 6.3 62.1 59.7 57.1 59.2 2.1 Soybean 74. 73.4 75.2 72.2 74. 1.8 Cotton 14. 13.5 13.7 14.2 13.8 -.4 Source: USDA and Doane's Forecast
The Potash Outlook Global Fundamentals Global Potash US Fundamentals US Potash Outlook
Ammonia Costs Depend on Gas Costs 5 45 US$/ST Gas Costs Conversion Costs 4 35 Current Tampa Ammonia Price ($328/st) 3 25 2 15 1 5 2. 4. 6. 8. 1. 12. 14. Gas Cost per Million Btu Source: TFI, Fertecon, PotashCorp
US Fertilizer Consumption Forecast Million Tons Nutrient Sharp Increase in 23/4 Due to exceptional weather, favorable crop prices and better reporting Down slightly in 24/5 Due to more normal weather and a decline in crop prices Down 3-5% Due to high gas prices, US market resistance to nitrogen prices, and reduced corn acreage. 23/4 YOY% 24/5 YOY% 25/6 Range K2O 5.498 11.1% 5.445 to -2% 5.25-3 to -5% Source: AAPFCO and PotashCorp 24/5 Estimates and 25/6 Forecast
The Potash Outlook Conclusion Industry government ownership is low Industry operating rates are high Global potash demand growth to average 2-3% 2 US market carries risk of 3-5% 3 drop from last year Market outlook is for continued tight supply/demand