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Starting to bloom in the desert

Summary

Stock market analysts are recommending the Chilean speciality fertilizer producer SQM as a "buy" option. It is easy to see why, as the company enjoys unique strengths, based on its vast resources of minerals extracted from the Atacama Desert. It is also vigorous in containing its costs of production and in forging strong alliances with global partners to extend its marketing reach.

Abstract

The title above is borrowed with full thanks from a review published by the Equity Research Department of Banco Santander Central Hispano Investment (16 September 2002), which reported very favourably on the outlook for mining in Chile, and in particular recommended the shares of SQM as a “buy” option. SQM was viewed as an attractive stock, as 75 % of the company’s consolidated revenues came from exports, and most of these were to US and European markets. Latin American markets accounted for only 6 % of the total. The weakness of the Chilean Peso was expected to provide a further boost to SQM sales. (SQM subsequently reported that 80 % of its sales of $553.8 million in 2002 came from exports.)

SQM is Chile’s leading fertilizer producer, and occupies a world leadership position in several sectors. Three businesses predominate:

  • Speciality fertilizers (including a 45 % share of the global market for potassium nitrate).
  • Iodine (28 % world market share)
  • Lithium (40 % world market share).

These three businesses represent over 70 % of SQM’s net sales, and good progress can be reported in each segment. In the speciality fertilizer market, a significant development was the marketing alliance that SQM formed with Norsk Hydro in 2001, which enables SQM to harness Hydro’s distribution network.

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Can India's P2O5 ­industry be sustained?

Summary

India's drive to develop an indigenous phosphate industry that relies mainly on imported raw materials has come at a high price. The government has created a heavily-subsidised and protected industry that has been signally unprofitable down the years. Now, India's membership of the WTO has placed renewed pressure on the country to liberalise its market. What are the prospects for the country's indigenous P2O5 producers as the government promises to end the drip-feed of subsidy that has sustained them so far?

Abstract

For long, successive Indian governments have sought to match the strategic goal of self-sufficiency in food production by fostering an indigenous fertilizer industry, employing a wide range of protectionist measures to do so. The major period of growth in Indian fertilizer capacity occurred between 1980 and 1995, and further new production capacity has come on stream latterly, to the extent that India now produces around 12 % (11 million tonnes N) of the total of 91 million tonnes of nitrogen produced in the world. Similarly, the Indian contribution to P2O5 production is 11% (3.7 million tonnes P2O5) of the 32 million tonnes P2O5 produced in the world. (Some Thoughts on Recent Developments in the Indian Fertilizer Scene, D. K. Varma, Chairman and Manag­ing Director, Rashtriya Chemicals & Fer­tili­zers Ltd. Paper presented at IFA Annual Conference, Lisbon, May 2002.)

A major factor that encouraged the growth of the Indian fertilizer manufacturing industry was the government’s pricing policy. This had the objective of providing fertilizers to farmers at affordable prices while ensuring adequate returns for the producers. The Retention Price Scheme (RPS) was inaugurated in 1977 and was fixed for each fertilizer manufacturing unit. The Retention Price was the difference between the state-fixed maximum retail price and the cost of production as assessed by the government with a post-tax return of 12 %, and was paid as a subsidy to the manufacturing unit.

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Could indigenous rock supplies be used?

Summary

India's total phosphate rock requirement now exceeds 4 million t/a. The country does possess indigenous supplies of phosphate rock, but these are largely of low-grade material, and the needs of the downstream phosphate fertilizer industry are almost entirely met by imports. However, opportunities exist of making better use of the domestic supplies, as described here.

Abstract

India’s existing phosphate fertilizer plants have been designed to use high-grade phosphate rock (25-30 % P2O5), almost all of which has to be imported. The current domestic demand for phosphate rock is around 4 million t/a, of which an estimated 95 % is used in the production of phosphate fertilizers. India does possess reserves of indigenous phosphate rock, but at around 306 million tonnes, these represent only 0.19 % of the world total. Proven recoverable reserves are estimated to total 89 million tonnes, while probable and possible reserves total an additional 70 million tonnes.

Nevertheless, India does support a small-scale phosphate rock mining sector, which produced 1.62 million tonnes in 1998/99. (Technologies for Utilisation of Low-Grade Rock Phosphates as Fertilisers, TIFAC [1999].) Phosphate rock production is concentrated in five states, as shown in Table 1.

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Changing dynamics

Summary

In this review of fertilizer trade patterns over the past five years, Luc Maene, Director General of IFA, examines the factors that have led to a steadily growing increase in the volumes traded. He notes that fertilizer exports have become an important way to generate income for many developing countries rich in the required resources, and over the past two decades, fertilizer production has shifted increasingly to these countries as they seek to export greater quantities of value-added products rather than raw materials. The bulkiness of fertilizers and their raw materials means that their transport is costly, adding to the impetus to process raw materials as close as possible to the source. This paper was first presented at British Sulphur's 14th Fertilizer Latin America Conference in Key Biscayne, 13-15 July 2003.

Abstract

The main policy issues affecting fertilizer demand and international trade include agricultural and industrial development policies. These can take the form of trade policy measures such as subsidies, quotas, import duties, non-tariff barriers to trade, anti-dumping legislation and less direct trade regulations, such as product market boards. Some developing countries maintain tariffs on fertilizer imports in order to foster the development of their domestic fertilizer industries, thus contributing to a long-term supply of crop nutrients that is less subject to the vagaries of exchange rates and international commodity prices. China and India, for example, both have national policies that are predicated on achieving a degree of self-sufficiency and improved food security for their large populations.

In the context of the Doha Develop­ment Round of the World Trade Organisation (WTO) and negotiations for the Free Trade Area of the Americas (FTAA), fertilizer industry associations from several industrialised regions have joined a broad coalition calling for the elimination of various industrial tariffs, including those on fertilizers traded on international markets. These groups argue that fertilizer tariffs raise the cost of the products in developing countries where farmers most need access to crop nutrients. Some contend that taxes on fertilizers are in effect taxes on food.

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Kazphosphate looks west

Summary

Kazakhstan has natural resources in abundance and extractive industries have been the backbone of the economy, led by oil and gas. The CIS republic also has a major phosphate rock mining and downstream fertilizer sector, under the privatised company, Kazphosphate LLC. The company came to wider notice recently, when its owner and chairman made a substantial overseas acquisition by buying Thermphos Holding of the Netherlands. Kazphosphate may prove to be a company to watch in the years ahead.

Abstract

Until a few months ago, the Kaz­akh­stan phosphate producer, Kazphosphate LLC, was little known. The company was formed as a limited liability company in October 1999, which brought together the formerly state-controlled Kazakh phosphate mining and downstream fertilizer operations. In Feb­ruary 2003, Kazphosphate raised its profile when its chairman and principal shareholder, Mr. N. Galmor, purchased the Dutch phosphorus and derivatives producer, Thermphos Holding, in conjunction with a group of private investors. In fact, Kazphosphate LLC is a company of strategic importance in the Republic of Kazakh­stan, which enjoys abundant natural resources. Extractive industries form the backbone of the country’s economy, helping to propel the Kazakh GDP to ­double-digit growth in 2001 and a further rise of 9.5 % last year.

Oil and natural gas are at the forefront of Kazakhstan’s economic push, accounting for over half of the Republic’s foreign ex­change earnings in 2001, and the downturn in oil prices explains the slight fall in the rate of GDP growth in 2002. Recog­nising the excessive reliance on the oil and gas sectors, the government has sought protection from oil price shocks by encouraging the expansion of other resource-based industries.

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Successes kept under a bushel

Summary

Vietnam has made remarkable strides in the past two decades in stepping up agricultural production and becoming a major exporter of rice and other products. There remains scope for further improvements, notably through adopting more balanced fertilisation, and Vietnamese agriculture remains highly labour-intensive, as described by David Hayes.

Abstract

Agricultural production has grown rapidly in Vietnam during the past three decades, following the reunification of the country in 1975. Although the cultivated area of land used for food crops has hardly changed, food production has risen threefold, from 11.4 million tonnes of rice equivalent in 1975 to 34.2 million tonnes in 2000.

Vietnam’s agricultural boom is due to various factors, including improved crop varieties, better irrigation, the use of integrated pest management and a commercially-motivated, hard-working farming community. Chemical fertilizers and other inputs have also played an important part in helping farmers increase food production. Research results suggest that the contribution of chemical fertilizers to total food production was about 34 % between 1975 and 2000, while the contribution of farmyard manure was around 6 %.

The growth in Vietnam’s agricultural productivity has been accompanied by a large increase in the use of fertilizers. NPK consumption, for example, grew tenfold, from 219,200 tonnes in 1981 to 2.20 million tonnes in 2002. (Fig. 1) “Vietnam’s fertilizer consumption has rocketed. Now there is evidence of excessive nitrogen use in some areas. Phosphate and potash use have also increased dramatically,” commented one extension worker. “If Viet­namese farmers see a possibility to use new technology, they quickly go for it, more than in many other Asian countries. Among the reasons for Vietnam’s success is the fact that the country’s farmers are industrious and highly motivated commercially. Agriculture is furthermore driven by a centralised government, and there is also active involvement from the fertilizer industry.”

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