Will Fertilizer Companies Lose Brazil's Business Forever?

by Sara Murphy, The Motley Fool Jun 11th 2013 5:01PM Updated Jun 11th 2013 6:00PM Around two years ago, Brazil declared its intention to wean itself off of fertilizer imports by 2020. While acknowledging that it could not fully meet domestic potassium demand, Brazil's stated aim was to become self-sufficient in nitrogen and phosphates, and to reduce its dependence on foreign potash (water-soluble potassium) significantly. Considering that Brazil is one of the world's largest potash consumers, importing 90% of its requirements, might this be shaping up to be a major blow to international producers?
Feeding a hungry planet Over the last 30 years, Brazil has transformed itself into a breadbasket, and it's done so in large measure by dramatically increasing farm inputs. The government is seeking to close that loop, putting pressure on the industry to triple spending on domestic fertilizer capacity over the course of the next five years.
Why might the country want to become less reliant on imports? Beyond the usual national security arguments, there's the matter of competitiveness. Transportation of nutrients to inland farms from ports can be very expensive and time consuming. As a result, Brazil's farmers are losing out to countries like the U.S.
To address this issue, Brazil's government wheedled miner Vale , in which it has a golden share, to invest in potash and phosphates. Vale's investment plan now calls for $8.8 billion in spending on fertilizers over the next five years. Coupled with related plans from state-owned Petrobras, predictions are that Brazil will reduce its overall dependence on fertilizer imports from 72% to 28% by 2017.
You'd think that this might have foreign potash suppliers quaking in their boots, but you'd be wrong.
PotashCorp and Russia's Uralkali are the two primary potash suppliers to Brazilian farmers. PotashCorp makes only a passing reference to Brazil in its 2012 10-K: "Potash from our Saskatchewan operations for sale outside Canada and the United States is sold exclusively to Canpotex, which is an export marketing and sales company. A significant portion of Canpotex sales are to China, Brazil, India, Indonesia, Malaysia and Japan."
CF Industries gets a little closer to stating a risk in its 2012 10-K: "Other geopolitical factors like temporary disruptions in fertilizer trade related to government intervention or changes in the buying/selling patterns of key consuming/exporting countries such as China, India and Brazil, among others, often play a major role in shaping near-term market fundamentals."
Agrium is all smiles in its 2012 annual report, highlighting the fact that it had expanded its retail presence in southern Brazil. Mosaic shows in its 2012 10-K that it derives nearly 20% of its net sales from Brazil, and identifies only currency risk in that market.
Not quite impending doom... Maybe this is because, for all its grand talk, Brazil is finding its progress toward self-sufficiency to be slow indeed. In 2012, Brazil consumed a record 8.1 million tons of potash, 9.3% more than in previous years. With 90% of that coming from imports, powerful voices within Brazil are concerned about the security of their agricultural boom.
But potash remains the toughest element of fertilizer's NPK triad. Vale's Taquari mine is expected to close in 2016, owing to exhaustion of its reserves. Taquari produces around 10% of Brazil's potash demand, so it will leave quite a void to be filled. Last week Vale also announced the suspension of its Rio Colorado venture in Argentina, which was supposed to turn Brazil's neighbor into a top potash supplier.
Meanwhile, despite publicly pushing to increase production, Brazil's government actually taxes domestic fertilizer production more heavily than imports. States charge sales tax on domestic fertilizers at 8.4% and levy a mining tariff of 2%, from which imports are exempt.
No wonder foreign suppliers seem to have concluded that Brazil is all bark and no bite. PotashCorp noted in its Q1 2013 earnings report that the "Latin American market, particularly Brazil, started the year at a record pace and we have a strong order book well into the second quarter." Agrium talks of leveraging "robust crop protection product demand growth in Brazil in 2013."
Trouble may still lurk Meet Verde Potash, a Brazilian fertilizer development company. Its Cerrado Verde project is a potash-rich deposit in the heart of Brazil's largest agriculture market is quickly scalable, and connects to Brazil's largest fertilizer distribution districts via existing and high-quality infrastructure. Vale is also looking at some potential new sites to fill the production gap from its Taquari mine.
And in what could turn out to be the biggest bombshell of all, Potassio do Brasil announced in April that it had discovered a large potassium deposit in the Brazilian Amazon. If the deposit is confirmed, Brazil could meet its own domestic demand within 10 years, according to the company.
Time will tell if this discovery is everything the company says. It certainly seems that near-term prospects for foreign suppliers remain strong. Still, investors should keep a close eye on Verde Potash and Potassio do Brasil, because they could prove to be game changers. And if the government ever gets serious enough to change its tariff structure, foreign suppliers may have to think twice about the risk they face in such a vital market.
With less and less arable land available around the world, increasing yields from existing plots could become vitally important to keeping up with expected population growth. Cheap and effective fertilizers could be the key to achieving this goal. As the global leader in potash production, PotashCorp has established several barriers to entry that make it nearly impossible for competition to break through. Click here now to access The Motley Fool's premium research report that covers precisely what these barriers to entry are and details several other key reasons why PotashCorp presents such a compelling investment opportunity today. The article Will Fertilizer Companies Lose Brazil's Business Forever? originally appeared on Fool.com.

Anglo American CEO: To Keep Copebras;Sees Strong Demand,Returns

LONDON -(Dow Jones)- Globally diversified mining company Anglo American PLC (AAL.LN) has decided not to sell its Copebras phosphates business in Brazil due to strong demand and high returns from the business, the company's chief executive said Friday. "We continue to look at the phosphates industry. Obviously there is a strong demand in the agriculture side," Cynthia Carroll told journalists in a call about its first half results. "We are seeing high returns and high demand for the near and medium term," from the business, she added. Copebras generated first half operating profit of $54 million, up more than four-fold on the previous period. Anglo American had previously considered selling the asset as part of its non-core disposal program which as so far generated $3.3 billion in cumulative proceeds. Anglo American also decided not to sell its Peace River Coal unit in Canada earlier this year for similar reasons and plans to expand the asset.

Anglo American wants to sell Copebrás again

Anglo American põe seus fertilizantes de volta no balcão
Procura-se desesperadamente o futuro da Anglo American Fosfatos, a antiga Copebrás. Nem mesmo Ruben Marcos Fernandes, presidente da divisão de fertilizantes da Anglo American no Brasil, se arrisca a fazer uma aposta. O próprio executivo foi pego no contrapé com a notícia que veio de Londres: os ingleses decidiram retomar o processo de venda da subsidiária.
O mandato, inclusive, já estaria nas mãos de um banco de investimentos norte-americano. Desta vez, a operação envolveria não apenas a unidade de fosfato, mas também a operação de nióbio, leiase a controlada Mineração Catalão. É mais um capítulo de uma novela cheia de zigue-zagues em exibição há mais de quatro anos. Em 2009, a Anglo American decidiu se desfazer da Copebrás, mas, depois de quase dois anos em busca de um comprador, não apenas desistiu do negócio como alardeou a promessa de pedalar o crescimento da controlada.
Ao que tudo indica, não passou de uma sublimação psicoempresarial. Há muito que a operação de fertilizantestornou-se um estorvo para os negócios da Anglo American no país, sorvendo recursos que deveriam ser destinados ao seu core business, ou seja, a produção de minério de ferro, níquel e cobre. Consultada, a Anglo American garante que continua "a avaliar o potencial de expansão" da divisão de fertilizantes.
É bom que se diga que a antiga Copebrás está longe de seus piores momentos. No primeiro trimestre do ano, as vendas cresceram 25% no comparativo com janeiro-março de 2012. O índice deverá se repetir no balanço do semestre.
Hoje, a taxa de ociosidade é de 10% da capacidade industrial, a menor dos últimos cinco anos. Na fabricante de fertilizantes, a expectativa é que este índice seja reduzido à metade até o fim do ano, não obstante a retração da demanda. Os ingleses já acreditam que o faturamento da controlada possa bater nos US$ 800 milhões em 2013, contra os US$ 700 milhões previstos inicialmente. Esses números, contudo, não parecem encorajar os ingleses a permanecer à frente do negócio. No momento, a recuperação é um estímulo à venda da empresa, passo que a Anglo American não conseguiu dar nos tempos de entressafra financeira da controlada. Mas é difícil não acreditar que haverá uma reviravolta (Relatório Reservado, 27/6/13)

Zuari Agro to invest Rs 4,400 cr in UAE fertiliser facility (from the http://www.thehindubusinessline.com)

Mumbai, Nov. 19: Zuari Agro Chemicals has signed an agreement with Ras Al Khaimah Maritime City to set up an integrated one million tonne a year diammonium phosphate manufacturing facility in the UAE. The project, being developed with an investment of $800 million (about Rs 4,400 crore), includes a power plant, private jetty and desalination plant. It is planned to be built over 400 acres in the free trade zone of RAK Maritime City. Suresh Krishnan, Managing Director, Zuari Agro, said the project would play a key role in the backward integration programme and help tap the fast growing global fertiliser market. Part of the $3-billion Adventz Group, Zuari has an annual installed capacity of 946,000 tonnes of fertiliser in Goa. The manufacturing facility comprises four separate plants, namely ammonia, urea, NPK A and NPK B. The plants employ the latest in pipe-reactor technology and are based on the slurry granulation process. The project in the UAE will further strengthen the company’s manufacturing foothold outside India. Last year, the company formed a joint venture with Mitsubishi Corporation, Japan, to form a new rock phosphate manufacturing company, MCA Phosphates Pte Ltd. Since then, MCA Phosphates acquired 30 per cent equity stake in Fosfatos del Pacifico of Peru for $46.12 million. Zuari Maroc Phosphates, a joint venture with Maroc Phosphore S.A., Morocco, acquired Paradeep Phosphates (PPL). At present, the company holds 80 per cent of the equity stake in PPL. PPL manufactures and markets complex phosphatic fertilisers and intermediary products such as phosphoric acid and sulphuric acid, which are crucial in the manufacture of phosphatic fertilisers. It has a plant located in the port town of Paradeep in Odisha, with an installed annual capacity of 720,000 tonnes of DAP and other phosphatic fertilisers. The off-site facilities comprise a 3.4-km closed conveyor from port to plant site, a railway siding, raw material storage yards and a 3.1-km long pipe rack.