Fertilizer markets face hefty output surpluses

The fertilizer industry faces the potential for a "large" production surplus in nitrogen by 2016 and "massive" surpluses in potash if nutrient groups prove better at meeting deadline on $90bn in new projects.

Global fertilizer sales will reach 245m tonnes in 2016, up 9% in five years, as slow growth in Asia offsets the impact of buoyant demand in "regions with large potential to increase agricultural production", such as Latin America and Africa.

"Compared to historical trends, demand growth is seen as significantly decelerating in Asia because some of the largest consuming countries in the region are approaching maturity," the International Fertilizer Association said.

"Asia's weight in regard to global growth is progressively declining, while Latin America is seen as reinforcing its position as an engine of future expansion."

'Potential imbalance'

But output will, on paper, grow by even faster, soaring 17-25% in nitrogen, and leading to "large potential surpluses", the Paris-based industry group said.

Urea supplies "will move from relatively tight-to-balanced conditions in 2012, to growing potential surpluses exceeding 8-10% of total supply in 2015-2016", boosted by "massive capacity addition that is planned in India" towards the end of the period.

In potash, capacity will soar 42%, leading a "potential imbalance" of more than 16m tonnes in potassium oxide terms - or 31% of supply.

Generous surpluses would be a recipe for lower prices, although the tightly-controlled potash market, in which a handful of operators account for the majority of supplies, has a particular record of curbing output to protect values.

'Schedule slippages'

Indeed, most potash projects "suffer from delays, slowing down the emergence of massive surpluses in the short-to-the-medium term," the association said.

Indeed, half the 250 fertilizer plants expected to come onstream over the next five years, following investment of $90bn, have suffered delays of six-to-18 months.

"Schedule slippages have slowed down the projected growth of capacity and have led to more balanced market conditions in the short term, while lowering the levels of potential surpluses in the near term," the IFA said.

Phosphate outlook

Prospects appear more balanced for phosphate supply and demand even if all projects begin on time.

"Phosphoric acid and phosphate fertilizer capacity would expand by 20%, but global phosphate demand is projected to grow at similar rates, thus absorbing most of the projected incremental supply."

There is the potential for the market only a "marginal surplus" of 2.0m-2.5m tonnes a year over the next five years "if a few projects were to be delayed".