Fertilizer market influences Oliver Hatfield Director, Integer

1. Fertilizer market influencesOliver HatfieldDirector, Integer

2. Fertilizer market influences • Biofuels • DEF: a growing market for urea • Nitrogen production costs • UAN market

3. Biofuels and fertilizers

4. Biofuel has become a major influence on fertilizers • - More biofuels = rise in crop production/land use = more fertilizer • Three main regions: • US • Europe • Brazil • At country level, direct and indirect factors • Direct: increase in land use for biofuels crops • Indirect: shifting crop patterns/fertilizer consumption • Market drivers are economics and politics • Economics of biofuels are weak: energy versus crop prices • Political influence is important

5. Biofuel demand for US corn is going up (million tonnes) Forecast Source: USDA, Integer

6. US fertilizer use on corn produced for ethanol Forecast (million nutrient tonnes) Source: Integer

7. Europe: biodiesel demand pushing up demand for rapeseed (canola) Rapeseed area (thousand hectares) Source: EC

8. Brazil: greatly influenced by biofuel directly AND indirectly Brazil finished phosphate fertilizer production and imports (tonnes P2O5) Source: Integer, ANDA

9. DEF

10. What is DEF? -Diesel emissions or exhaust fluid: technological solution for dealing with NOx emissions from Class 3-8 diesel engine trucks -Uses Selective Catalytic Reduction (SCR) technology to treat exhaust gas -Crucial point is that it uses a 32.5% urea solution -It is therefore a new market for urea in the US

11. Where else... • In Europe: • DEF is called AdBlue • European OEMs have used urea-SCR for over three years and there are now 700,000 SCR trucks driving on the roads of Europe • The European market has developed to just over 1 million tonnes of AdBlue, equivalent to 330,000 tonnes of urea • Competition for market share has been fierce with many fertilizer producers active: Yara; AMI; BASF; Fertiberia; GPN; SKW; Pulawy; Police; Achema etc • A market in Asia is growing too, but is currently fragmented with relatively low demand outside of Japan. • This will change when China and India adopt tighter emissions legislation: 2012?

12. Why is DEF of interest in the US? • Driven by the US EPA’s 2010 emissions legislation – the world’s strictest • The market IS happening regardless of the economic situation or any other consideration and SCR trucks will be sold from January 1st 2010 • Most of the major OEMs have committed to using SCR/DEF technology: • Daimler Trucks/Detroit Diesel (Freightliner, Western Star) • Volvo/Mack • PACCAR (Peterbilt, Kenworth) • Cummins • -Nitrogen fertilizer companies and others are positioning themselves to serve the market

13. How does it affect US fertilizer producers? • Non-seasonal, industrial market • Less commoditised than fertilizer: high product specification, favours urea manufacturers within a certain plant radius. • Logistics and supply chain are key – DEF is 67.5% water and transport costs are one of the major overheads • High water content makes it a similar business model to UAN, although bulk deliveries will be to non-agricultural customers • Demand likely to be centred close to truck miles: coasts and transport corridors. The largest markets based on diesel consumption will be Texas and California. • California is isolated from NA urea capacity and could be a target for DEF producers with an import based business model.

14. North American urea capacity

15. How will it affect US urea demand? Source: Integer

16. Nitrogen production costs

17. Gas prices determine nitrogen competitiveness Overview: • Natural gas is the primary cost component of nitrogen production • Nitrogen market now back to supply and cost basis, key pricing mechanism • Economic slowdown has shaken up nitrogen production competitiveness: • Short term and medium term effects • Particularly in swing and export capacity

18. Russian nitrogen production costs have gone down Russian nitrogen producer gas prices US$ per mmBtu Source: Integer

19. While Ukrainian gas prices continue to move up – now oil link Ukrainian nitrogen producer gas prices US$ per mmBtu Source: Integer

20. Europe and US trading places Energy prices US$ per mmBtu Source: IMF, Integer

21. Significant market impact • Energy price volatility • Differing regional gas pricing creating opportunities/threats: some plants idled, others making money. • Exchange rates also influential • Will Ukrainian and Central European export capacity close? • Economics indicate yes, but politics? Energy prices US$ per mmBtu

22. UAN

23. UAN quite small in the global nitrogen market World N fertilizer demand, total = 100 million tonnes N Source: Integer, IFA

24. But it’s important in North America and West Europe UAN demand by country 2007, total = 17.5 million tonnes Source: Integer

25. UAN is of increasing importance in the US market USA single nutrient N fertilizer demand as % of total single N demand Year ending June Source: Integer, AAPFCO

26. UAN is a key nitrogen product for North American producers Source: Integer, company sources

27. And for UAN exporters to the USA US UAN Imports (thousand tonnes) Source: Integer

28. Example: Romania UAN exports (thousand tonnes) Source: Integer

29. Outlook: major increase in World UAN export supply • Significant new UAN capacity due on stream, targeting US and European markets: • Trinidad 1.5 million tpy of export capacity • Elsewhere, Egypt 0.3 million tpy of capacity, plus recent start ups • Also new capacity in US • Terra upgrade at Woodward • Other US upgrade projects proposed

30. Overview: Market shake-up likely • - Supply likely to be > Demand • Main issue will be cost competitiveness • Uncertainty about exports from Romania, Bulgaria, Ukraine, Poland and Lithuania • Transportation and logistics are important • Relative nitrogen product pricing important: product choice is price sensitive • A Terra, CF Industries merger would create a dominant UAN supplier

31. Thank you for listeningAny questions?Contact: Oliver.Hatfield@integer-research.comwww.integer-research.com+44 20 7503 1265