South America Calling
Alastair Stewart South America Correspondent

Wednesday 08/27/14

For Brazil, Fertilizer Self-Sufficiency Remains a Distant Dream

Back in 2010, then-President Luiz Inacio Lula da Silva announced Brazil would start a five-year drive to become self-sufficient in fertilizers.

But four years later, independence seems a distant dream. For while fertilizer imports have surged 40% in the intervening period, mainly due to growth in the grain sector, production has remained stagnant.

"Self-sufficiency isn't a realistic aim at present," said George Bonifacio e Sousa, president of the Brazilian Fertilizer Distributors' Association (ANDA).

The truth is that Brazil lacks the world-class projects and fertilizer prices simply aren't attractive enough for companies to accelerate the plans they have.

A SOUND STRATEGIC PLAN

The strategic thinking behind Lula's initiative was sound enough.

Food supply will likely become an increasingly sensitive geopolitical issue over the next 20 years and, as a major global agricultural player, Brazil should seek to limit its reliance on inputs from potentially volatile suppliers, such as Russia and countries in the Middle East.

He called on Petrobras, the state-owned oil giant, and Vale, a major miner in which the government has a key stake, to lead the drive. (See past story at http://bit.ly/…)

But economic and operational realities have hampered efforts.

Petrobras is still far from developing large offshore natural gas deposits, which could allow Brazil to reduce its dependence on imported ammonia.

Meanwhile, Vale last year cancelled its Rio Colorado project in Argentina amid rising costs and political intervention, robbing the company of its main potash project.

The company still plans to bring its Carnalita potash project online in 2017, but projected output does no more than replace capacity lost as a nearby mine reaches the end of its natural life.

Just as in the rest of the world, a less-than-inspiring price outlook for fertilizers is causing many to put projects on hold. That applies to Petrobras and Vale as much as other private investors.

Back in 2010, Petrobras and Vale may have considered investing in government vanity projects, despite uncertain returns, in order to keep the overlords happy. But times are tough at both companies now -- Petrobras is straining under the burden of debt and Vale has been hurt by the metal-price doldrums -- and they can't afford to divert funds to fertilizers.

INVESTMENT WILL MAINTAIN IMPORT DEPENDENCE

In 2013, ANDA said its members had planned investments worth $13 billion.

It's fair to say that many of those projects are not racing to completion. Those projects will only increase capacity sufficiently to meet new demand and stop import dependence from growing, said Sousa.

According to ANDA figures, imports met 70% of Brazil's fertilizer needs in 2013, up from 62% in 2010.

The biggest dependence is on potash, of which Brazil imports 96% of needs.

Things are only likely to change with strong government incentives to fertilizer investment and there is no indication of that happening, said Sousa.

Meanwhile, in the short term, fertilizer demand continues to surge, while production declines.

In the first seven months of 2014, fertilizer sales reached 16.2 million metric tons, up 7% on the same period of last year, while imports rose 12.8% to 13.2 mmt. The recent slide in grain prices will likely cause fertilizer sales to slow in the second half of the year but nothing that will change the underlying trend.

(AG)

Posted at 10:38AM CDT 08/27/14 by Alastair Stewart
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