Vale still searching for partner in fertilizer industry

Provider: Valor Econômico

December 11, 2014 (08:28)

A year after admitting it was looking for a strategic partner for the fertilizer division, in line with its strategy of concentrating the focus on iron ore, miner Vale keeps giving no signals on the status of its search. Meanwhile, the company’s investments to increase the domestic supply of raw materials for the production of fertilizers are uncertain and make room for a continuous increase in imports, which now account for about 70% of a demand that continues to grow.
Market sources claim that Vale could partner with a single group or seek less ambitious one-time projects. Nevertheless, the miner seeks companies with know-how in fertilizers and does not want to get rid of the control of a business that it was “convinced” to buy during the government of Luiz Inácio Lula da Silva. Depending on the model chosen, one or more joint ventures are expected to be created.
Without offering clues on which path it will follow, in recent days Vale has been reinforcing statements about its search for partner in the sector. On Tuesday, Vale CEO Murilo Ferreira said the company continues to work “intensively” to reach an agreement in this segment.
Companies with bigger chances to be partner of Vale include Norway’s Yara, several industry representatives told Valor. Yara said “it did not comment on market rumors.” According to these sources, Yara is interested in increasing its stake in phosphate fertilizers. A step has been taken in this direction with the acquisition of a 60% stake in the Brazilian group Galvani earlier this month.
Worldwide, Yara is best known for its leadership in the nitrogenous fertilizer industry. The company began to operate timidly in Brazil in the 1970s. From the 2000s, it started making acquisitions in the country and today is a leader in the domestic distribution of fertilizers, with a 25% share.
The leading position in the Brazilian market was made possible with the acquisition of the fertilizer operations of American multinational Bunge last year. In Brazil, Yara has 33 fertilizer mixing units and three producing phosphate fertilizers.
The market has also speculated that its future partner in this sector would be an Indian company. Indian cooperative IFFCO, one of the world’s largest manufacturers and distributors of fertilizers in the cooperative sector, said it would not comment on the matter. Last year, the IFFCO announced a long-term contract with Vale for the supply of phosphate ore from the Bayóvar mines in Peru.
Vale returned to the fertilizer market after acquiring shares of multinational and Brazilian companies in Fosfértil, a former state-run company which was privatized in the 1990s. In 2010, Vale completed the purchase of Bunge’s assets in the segment and the acquisition of Fosfertil’s controlling interest in a $4.7 billion deal.
More so because of the government’s pressure, Vale’s investment generated huge expectations in the Brazilian market, historically dependent on imported fertilizers. But the company didn’t embark on an investment wave in the segment, as expected, and despite strong growth in domestic demand, the country’s fertilizer production lost space and even declined in 2013, down 4.3% compared to 2012.
From January to October this year, the country produced 7.350 million tonnes of intermediate fertilizers, a 6.5% drop over the same period of 2013, according to the National Association for the Promotion of Fertilizers (Anda). In the same comparison, imports grew 11%, to 20, 421 million tonnes, and domestic sales increased 5.7%, to 27.448 million tonnes.
These figures show that Brazil is still far from reducing its historic dependence on imported fertilizers. And the scenario should not change much in the coming years. It may even worsen, given that local sources of ore are in fact scarce and new exploration projects demand billions in investments.
Also, industry officials say a major reason for not investing in the production of raw materials for fertilizers in the country is the lack of tax equality, since the imported product is not taxed, unlike the one produced in the country. The demand for a change is old, but there the government gives no sign if it will announce new rules son.
Investments in production of raw materials for fertilizers in the country totaled $13 billion in 2013, to be disbursed by 2018, according to Anda. Of this amount, Vale is one of the largest investors. If materialized, these $13 billion investment would represent an additional production of 9 million tonnes of intermediate fertilizers and could reduce by $4.5 billion the deficit in the industry’s balance by 2018, according to calculations of Anda. Vale represented most of that amount. The trade group’s calculations forecast additional production of 9 million tonnes of intermediary fertilizers and could cut up to $4.5 billion from the segment’s trade deficit until 2018.
If Vale Fertilizantes sell its assets to some company, there would not happen a big change in the fertilizer market, as production in this case would only change hands, sources say. Unlike acquisitions in the fertilizer distribution business, which ended up being more concentrated in recent years