NITROGEN OUTLOOK Presentation Visuals by Tom Blue Blue, Johnson & Associates, Inc.

Transcription

1 BLUE, JOHNSON & ASSOCIATES, INC. FERTILIZERS CHEMICALS MINERALS ENERGY TFI FERTILIZER OUTLOOK & TECHNOLOGY CONFERENCE November 17, 21 NITROGEN OUTLOOK Presentation Visuals by Tom Blue Blue, Johnson & Associates, Inc. 611 MARBLE NE., SUITE PINEHURST PLACE 2233 GLENBAR DRIVE ALBUQUERQUE, NEW MEXICO 8711 SAN RAMON, CALIFORNIA GERMANTOWN, TENNESSEE FAX (55) FAX (925) FAX (91) THOMAS A. BLUE (55) DENNIS R. JOHNSON (925) DAVID C. CENTKO (91) BLUEABQ@QWEST.NET GAYLE E. JOHNSON (925) DCCENTKO@AOL.COM DRJOHNSON@BLUEJOHNSON.COM

2 Blue, Johnson data file as of: 11/5/1 U.S. FERTILIZER DEMAND (MMstons) BJA ESTIMATES TOTAL NUTREINTS FY 25 FY 26 FY 27 FY 28 FY 29 FY 21 FY 211 N P2O K2O

3 Blue, Johnson data file as of: 11/5/1 2 CONSCROP2 2 U.S. FERTILIZER CONSUMPTION: N 15 Total, All Crops Total, ex Corn For Ethanol Price, Blended N, Spot Average Corn Belt (scale --->) 15 MMstons Nutrient 1 a b 1 $/ston N (a) (b) Forecast assumes convential ethanol production ranging B gal. Re fertilizer "Four Rs" -- right product, right rate, right time, right place -- USDA estimates current practice by ~ 15 % of farmers. Forecast assumes "significant" increases towards end of the decade.

4 2 Blue, Johnson data file as of: 11/5/1 U.S. NUTRIENT CONSUMPTION: N CONSCROP2 15 Fertilizer,Total ex Corn For Ethanol (a) Energy (b) Other Industrial MMstons Nutrient (a) Re fertilizer "Four Rs" -- right product, right rate, right time, right place -- USDA estimates current practice by ~ 15 % of farmers. Forecast assumes "significant" increases towards end of the decade. (b) Energy includes corn for ethanol, AN for coal mining, and NH3-urea for emissions control (power plants, diesel engines).

5 3 Blue, Johnson data file as of: 11/1/1 U.S. Nitrogen Market: TOTAL TOTAL SUPPLY MMstons NH3 equivalent 2 1 DOMESTIC PRODUCTION (NH3) DOMESTIC CONSUMPTION IMPORTS EXPORTS U.S. NITROGEN SUPPLY SOURCING Domestic Imports Total N % 15% % 25-3% 29 52% 48% 29 Ammonia 4% 6% UAN 9% 1% Urea 37% 63% Ammonium Nitrate 81% 19% Ammonium Sulfate 81% 19%

6 175 O 1 Mstons product U.S. OPERATING RATE scale ---> U.S. PRODUCTION <--- scale 75 5 Percent AMMONIA U.S. IMPORTS <--- scale 25 J 26 J 27 J 28 J 29 J 21 J 25

7 Blue, Johnson data file as of: 11/5/1 1 U.S. AMMONIA PRODUCTION vs. NATURAL GAS PRICE prdvsgas 15 AMMONIA INDUSTRY OPERATING RATE <---- scale 75 1 PERCENT NATURAL GAS PRICE: CENTRAL PLAINS DLV NH3 PLANTS, BIDWEEK INDEX BASIS scale ----> $/MMBtu J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D

8 Blue, Johnson data file as of: 9/27/1 U.S. NITROGEN CAPACITY TRENDS 2 nitcapgr 15 NSOL (UAN 32 Basis) AMMONIA MMstons 1 DRY UREA 5 DRY AMMONIUM NITRATE

9 New modern nitrogen capacity continues to be put in place: -- Growth in world demand, -- Replacement and/or revamp expansions of older, less efficient facilities. -- Most new projects in areas with feedstock cost advantages (e.g., North Africa, West Asia), and in China.

10 New projects considered outside China based on gasification technologies (coal, petcoke). In the U.S., at least ten specifically designed to produce ammonia and (mostly) urea. All were large, i.e., base capacities at or near.9-1 MMstpy NH3. A few are still active but most are not, for one or more of the following reasons: -- Drop in prices for nitrogen products. -- Drop in prices for natural gas. -- Tougher standards/costs for CO2 management/sequestering requirements, including issues about ownership of CO2 liabilities. -- Overall high construction/capital costs. -- Tighter investment climate.

11 If any such projects get off the ground, none likely hit the market much before 215.

12 Blue, Johnson file as of: 11/1/1 MAJOR N PRODUCTS: ESTIMATED DOMESTIC SUPPLY H2 21 (H1 FY 211) vs. H2 28 H2 29 AMMONIA + 7% + 14% UREA + 4% + 15% UAN - 9% - 3% AN - 26% - 2% AS + 8% + 16% NET N + 1% + 9%

13 2 Blue, Johnson data file as of: 11/5/1 U.S. FERTILIZER-CROP PRICE RELATIONSHIPS US $/ston 1 6 US $/bu 5 NUTRIENT PRICES (<--- scale) CROP PRICES (scale --->) 3 Blended N Value, fob Corn Belt Corn Chicago Cash Wheat Kansas City Cash DÉJÀ VU?

14 INDEX 2 = CURRENT DOLLAR BASIS End US dollar peg to gold Blue, Johnson data file as of: 11/5/1 COMMODITY PRICES INDICES GOLD New York Beginning explosion in world financial assets Collapse of the credit bubble Explosion in US Fed bank reserves US $/OZ 7 CONSTANT DOLLAR BASIS PER U.S. GDP DEFLATOR INDEX 2 = GOLD New York

15 Blue, Johnson data file as of: 11/5/1 COMMODITY PRICES INDICES INDEX 2 = CURRENT DOLLAR BASIS End US dollar peg to gold Beginning explosion in world financial assets Collapse of the credit bubble CRUDE OIL U.S. RAC US $/BBL Explosion in US Fed bank reserves CONSTANT DOLLAR BASIS PER U.S. GDP DEFLATOR INDEX 2 = CRUDE OIL U.S. RAC

16 INDEX 2 = CURRENT DOLLAR BASIS End US dollar peg to gold Blue, Johnson data file as of: 11/5/1 COMMODITY PRICES INDICES End US natgas price regulation NATURAL GAS U.S. Elec Utilities Beginning explosion in world financial assets Collapse of the credit bubble Explosion in US Fed bank reserves US $/MMBTU 7 CONSTANT DOLLAR BASIS PER U.S. GDP DEFLATOR INDEX 2 = NATURAL GAS U.S. Elec Utilities

17 INDEX 2 = CURRENT DOLLAR BASIS End US dollar peg to gold Blue, Johnson data file as of: 11/5/1 COMMODITY PRICES INDICES UREA NOLA Barge Beginning explosion in world financial assets Collapse of the credit bubble Explosion in US Fed bank reserves US $/STON 7 CONSTANT DOLLAR BASIS PER U.S. GDP DEFLATOR INDEX 2 = UREA NOLA Barge

18 Blue, Johnson data file as of: 4/29/1 3 WORLD "WEALTH" 4 2 FINANCIAL ASSETS GDP RATIO: Assets to GDP (scale --->) 3 $ trillion?

19

20 Blue, Johnson data file as of: 5/26/1 6 U.S. FEDERAL GOVERNMENT CASH FLOW? 4 US $ trillions TOTAL EXPENDITURES 2 TOTAL RECEIPTS Total Expenditure projection is Congressional Budget Office estimate based on Feb. 21 Obama budget.

21 15 Blue, Johnson data file as of: 11/5/1 AMMONIA: Monthly Prices vs. Gas Prices 15 1 Ammonia Price, Avg Corn Belt fob (<--- scale) Natural Gas Price, Central Plains Bidweek (scale --->) Central Plains Natural Gas Cost in Ammonia (<--- scale) 1 U.S. $/ston US $/MMBtu 5 5 J 24 J 25 J 26 J 27 J 28 J 29 J 21

22 15 Blue, Johnson data file as of: 11/5/1 UREA: Monthly Prices vs. Gas Prices 15 1 Urea Price, NOLA Barge G fob (<--- scale) Natural Gas Price, LA Onshore Bidweek (scale --->) NOLA Natural Gas Cost in Urea (<--- scale) 1 U.S. $/ston US $/MMBtu 5 5 J 24 J 25 J 26 J 27 J 28 J 29 J 21

23 Blue, Johnson data file as of: 11/5/1 BLUE, JOHNSON PROXY PLANT TRENDS: NITROGEN 45 3 US $/ston product 3 15 PLANT CASH MARGINS AMMONIA (Midwest) UAN (Midwest) UREA (NOLA) e f US $/net annual ston N capacity 5 a b a Letter plots reflect transaction year, and approximate transaction value (right scale) per net annual ston N of sold assets, total effective ammonia capacity basis. First Miss sold to MissChem Farmland N assets sold to Koch c d MissChem N assets sold to Terra Simplot Brandon assets sold to Koch e f Saskferco sold to Yara Terra sold to CF b c d

24 Blue, Johnson data file as of: 11/5/1 6 3 AVG CORN BELT PRICE PREMIUM OVER UREA: MONTHLY UAN N -3-6 AMMONIA J 27 J 28 J 29 J 21 J AVG CORN BELT PRICE PREMIUM OVER UREA: ANNUAL UAN -3 AMMONIA

25 Blue, Johnson data file as of: 11/1/1 WORLD CAPACITY GROWTH SUMMARY (MMtpy product, metric) TOTAL WORLD CAPACITY, 29 AMMONIA UREA UAN NEW PROJECTS (ex-china) ne Possible ne

26 Blue, Johnson data file as of: 12/9/9 ammcapw r 15 AMMONIA: WORLD CAPACITY Scenario EX-FSU, CHINA MMtonne/year product 1 5 CHINA FSU UREA: WORLD CAPACITY Scenario EX-FSU, CHINA MMtonne/year product 1 5 CHINA FSU

27 IN CONCLUSION.... U.S. fertilizer use will be up in FY 211, with N approaching 13 MMstons. All fertilizer prices are up, significantly correlated to crop prices. Major suppliers appear to be sticking with a strategy of supplying/taking orders for one or two months only at a given price, seems more prevalent than in past marketing programs.

28 So, in a scenario where crop prices (especially corn) keep ramping up, suppliers will have not oversold at current prices (below opportunity). Or, if crop prices (corn) seriously retreat for some reason, suppliers have the option to drop prices so as to continue to move product. Lessons were actually learned in 27, 8, 9. With corn harvest occurring relatively early, demand for P, K, and ammonia for Fall application is/has been pretty strong. Re P&K, though, the uncertainty becomes: if a lot

29 goes down now, to what degree will that impinge on Spring demand? In absolute terms, we see no basic, inherent shortage of N, P & K supply capability for both the domestic and international market. The principle issues are, as always, supply at what price, and is it/will it be in the right place at the right time?