Outlook for the Asian Ammonia &

Urea Markets

Gavin Ju, Senior Consultant

CRU Fertilizers

IFA Crossroads Asia-Pacific 2013

6 – 8 Nov 2013, Bali

Outline

• Recent market developments

• Outlook for demand, supply and trade in Asian market

• China focus: Potential change to 2014 export policy

• Conclusions

CRU confidential
 Recent Urea Price: what factors have changed the
price performance when prices hit bottom?
$/mt Prilled FOB Black Sea Prilled FOB China
600

550

500

450

400

350

300

250

200

• FOB Black Sea had been lower than FOB China when urea prices reached bottom…
• … but it was changed during the Chinese export window in Jun - Oct 2013 3

Data: FertilizerWeek, CRU

Chinese urea site costs reduced significantly by a

dramatic drop in coal prices
US$/MMBtu
Lump Anthracite Powder Anthracite Bituminous Coal
9 • Urea site costs based on coal cut back in 2013

8 • …except producers based on natural gas

7 • Gas-based urea has less advantage than
6 cost based on bituminous coal.
5 Site costs ($/t)

350 -12%
4 -14% 2012

300 2013
3 -18%
Apr-09
Jul-09
Oct-09

Apr-10
Jul-10
Oct-10

Apr-11
Jul-11
Oct-11

Apr-12
Jul-12
Oct-12

Apr-13
Jul-13
Oct-13
Jan-09

Jan-10

Jan-11

Jan-12

Jan-13

250 +2%

200

Main drivers of coal price fall: 150

• Surge in coal imports 100

• Market oversupply
50

• Weak demand in relevant industries

0
• High inventory in power generation plants Lump anthracite Lump & powdered Sub-bituminous Natural gas 4
anthracite

Data: CRU

CRU confidential
 Chinese export cost still at the high end, but a bit
lower than Ukrainian cost in Q3 2013

Data: CRU

Outline

• Recent market developments

• Outlook for demand, supply and trade in Asian market

• China Focus: Potential change to 2014 export policy

• Conclusions

CRU confidential
 Shares of global crop areas and nitrogen demand
China over-applies, other Asian regions mostly balanced

Share of Crop Area, 2012 Share of Nitrogen Demand, 2012

Oceania
Oceania China Latin
Latin
13% America
America

N America China
32%
N America
RoW
Asia Africa
38%
RoW 44%
56% Asia (ex Asia
China) 62%
Europe &
31%
Africa FSU

Asia (ex
Europe & China)
FSU 30%

Total Asia – 578 million ha. Total Asia – 69 million tonnes N 7

Data: CRU

Asian Demand Outlook: urea consumption grows by

17 million tonnes from 2013-2018

Urea Demand, 2012 Asian Urea Demand

CAGR
Oceania million t 2012/18
L. America 140 129 132
123 126
N America 118 121
115 2.3%
120
Other Asia
Africa East Asia 7.2 3.8%
Pakistan 7.9 3.9%
RoW 37% 100
5.8 Indonesia
Europe & 27% 6.3
FSU 80 35.5 2.7%
India
30.3
Middle
Asia 60
East
3% 73%
40
SE Asia 1.8%
56.6 China 62.9
8%
20
South Asia
25% 0
2012 2013 2014 2015 2016 2017 2018

Total Asia – 115.3 million tonnes 8

Data: CRU

CRU confidential
 Asian Demand Outlook: ammonia consumption
grows by 12.5 million tonnes from 2013-2018

Ammonia Demand, 2012 Asian Ammonia Demand

Oceania CAGR
million t 2012/18
L. America 120 110 111
107 108
N America 103 104
99
100 Other Asia 1.9%
East Asia
Africa 35% Pakistan 3.5 0.8%
5.1 0.5%
80 Indonesia
3.3
RoW 5.0
India 19.9 4.3%
42%
Asia 15.4
60
58%
Europe &
FSU 40
China 61.3 1.5%
55.9
South Asia 20
SE Asia 12%
Middle East 4%
7% -
2012 2013 2014 2015 2016 2017 2018

Total Asia – 98.6 million tonnes 9

Data: CRU

Asian Supply Outlook: urea capacity grows by 36.6

million tonnes from 2013-2018

64% of Global Growth to 2018 Asian Urea Capacity

million t CAGR
2012/18
200
173 175 175
167
156
146 23.7 2.3%
150 138
15.7 3.5%
20.7
37.1 2.5%
+1.1 12.8
Iran China 100
+25.6 mlt 32.1
+1.1 +0.9
Qatar
+0.6
Saudi Arabia +4.4 Bangladesh 5.1%
50 98.5
+0.5 72.9
India Vietnam

+1.2 0
Malaysia
+1.3 2012 2013 2014 2015 2016 2017 2018
Indonesia
East Asia South Asia SE Asia
Middle East Total Asia
Notes: including adjustments for closures, expansions, new supply 10

Data: CRU

CRU confidential
 Asian Supply Outlook: ammonia capacity grows by
23.5 million tonnes from 2013-2018

61% of Global Growth to 2018 Asian Ammonia Capacity

million t CAGR
2012/18
150 137 138 139
132
126
116 120 19.6 2.4%
11.9 3.5%
17.0
100
9.6 24.4 2.3%
+0.7 Iran 21.3
Qatar China
+0.2 U.A. +15.5
Emirates mlt
+1.1 +0.7
3.5%
+0.3 50
Saudi Arabia +2.8 Bangladesh 83.3
67.9
+0.3
India Vietnam

+0.7 0
Malaysia
+1.2 2012 2013 2014 2015 2016 2017 2018
Indonesia
East Asia South Asia SE Asia
Middle East Total Asia
Notes: including adjustments for closures, expansions, new supply 11

Data: CRU

Asian Trade Outlook: top 10 urea exporters and

importers in 2018
Asian top 10 exporters in 2018 Asian top 10 importers in 2018
Change in Change in
million t 2012/18 million t 2012/18

Qatar 4,4 1.5 India 6,9 0.9

China P.R. 4,1 2.9 Thailand 2,7 0.5

Saudi Arabia 3,8 0.7 Pakistan 2,0 1.1

Oman 2,6 Indonesia 1,5 1.4

0.6

Iran 2,0 0.6

Bangladesh 1,3 0.5

U.A.Emirates 1,7 1.1 South Korea 0,7 0

Indonesia 1,0 0 Philippines 0,6 0

Malaysia 0,8 Sri Lanka 0,5 0.2

0.1
Kuwait 0,8 Malaysia 0,4 0.1
0

Bahrain 0,6 0.1 Taiwan 0,3 0.2

12

Data: CRU, GTIS

CRU confidential
 Asian Trade Outlook: top 10 ammonia exporters and
importers in 2018
Asian top 10 exporters in 2018 Asian top 10 importers in 2018
Change in Change in
million t 2012/18 million t
2012/18
Iran 1.8 1.3 India 3.4 1.6

Saudi Arabia 1.8 0.2 South Korea 1.5 0.3

Indonesia 1.4 0.4 Turkey 0.9 0.3

Qatar 0.7 0.1 China P.R. 0.8 0.5

Malaysia 0.6 0.2 Taiwan 0.7 0.1

Oman 0.2 0.1 Japan 0.5 0.3

Turkey 0.2 0 Indonesia 0.5 0.2
Vietnam 0.1 0 Thailand 0.3 0

Bangladesh 0.1 0.1 Jordan 0.2 0.2

Kuwait 0.1 0 Vietnam 0.2 0.1

13

Data: CRU, GTIS

Outline

• Recent market developments

• Outlook for demand, supply and trade in Asian market

• China Focus: Potential change to 2014 export policy

• Conclusions

14

CRU confidential
 China’s export policy may be revised in 2014
Exports in high season : From prohibited to restricted

2008 -
2014
2013
Key point Restricted in the Prohibited in the
high season high season

Main driver Oversupply in N

CPI pressure
industry

No exports except
Target Exportable in the
cargo in bonded
high season
warehouse

Bottom line Price affordable & Price affordable &

Sufficient supply Sufficient supply
15

Hope of Chinese players: how to seize more chances

of price spike and export more in the high season?
$/mt China's Urea Exports (RHS) Prilled FOB China Monthly ‘000 mt

550 1,750

500 1,500

450 1,250

400 1,000

350 750

300
High price 500
but low
exports
250 250

200 -

Export window 16

Data: CRU, GTIS

CRU confidential
Different Scenarios for China’s 2014 urea export policy

Producers
Scenario Government Assessment
& Traders

Cancel export window restriction

Impossible
completely

A uniform but “modest” tax-rate

Unlikely
in the whole year, say 10%

Expand export window Possible

A reduced and fixed tax-rate in

Probable
high-season, say 20-30%

Low
Combine the above two
Possible
17

Conclusions

• Asia will maintain the largest share in the world’s urea and ammonia market

• The capacity expansion in South Asia by 2018 will not be able to outstrip
the demand increase

• SE Asian demand will be covered by its own capacity expansion, China and
the Middle East

• There will be a severe oversupply in China in the medium term

• China’s 2014 export policy could be revised, in order to relieve the

oversupply situation.

18

CRU confidential
Thank you
for listening

CRU confidential