South America Calling

The decision of a Brazilian mining giant to drop a controversial potash project in Argentina caused Brazilian fertilizer investment projections to fall sharply when announced Monday at an annual industry event in Sao Paulo.

The industry's principle players will invest $13 billion over the next five years, considerably down on the $18.9 billion announced one year ago, said Brazilian Fertilizer Suppliers Association, ANDA.

The drop came after Vale shelved its $6 billion Rio Colorado potash project in Argentina because of rising costs and political meddling.

A couple of years ago, Brazil's Former President Luiz Inacio Lula da Silva announced that state-owned oil firm Petrobras and Vale, in which the government has a strategic stake, would lead a drive to fertilizer self-sufficiency.

Fast forward to 2013 and the fervor behind the drive has subsided, although massive investments are still scheduled.

"Brazil's fertilizer industry remains fully committed to investing in the industry," said Rodolfo Galvani, president of SINPRIFERT, the Fertilizer producers' association, during his presentation of e figures.

Petrobras will invest $7.9 billion during the period in projects to turn its natural gas resources into urea and ammonia, while Vale plans massive projects to extract phosphorus and potassium, including in Canada and Peru.

As a result, Brazilian nitrogen production will jump from 825,000 metric tons (mt) in 2013 to 2.1 million metric tons (mmt) in 2018, reducing import reliance from 76% to 46%, according to ANDA figures.

Phosphorus output will grow from 2.25 mmt to 4.11 mmt, reducing import reliance from 57% to 21%. Potassium output will increase from 278,000 mt to 720,000 mt but Brazil will remain a major importer, relying on foreign suppliers for 53% of their K needs.

However, with fertilizer markets in generally bearish mode, it may be inevitable that some investment projects are put back, said George Bonifacio e Sousa, ANDA's president.

For example, experts have questioned the economics of Vale's Carnalita project to produce 1,200 Kta on potassium chlorate in Northeastern Brazil.

Brazilian fertilizer production costs are higher than their rivals due to expensive raw materials, poor logistics and high taxes, said SINPRIFERTI's Galvani,

But they also have a number of key advantages, the principle being that they are sitting on one of the world's fastest-growing markets.

Brazilian demand for fertilizers grew 85% over the last 10 years, while the poor logistics and the long distances from port to many farm gates make importing fertilizers expensive.

Brazilian fertilizer production has grown 26% over the last 10 years and now all the low-cost options for increasing capacity have been exhausted.

"The only option we have now is greenfield projects (which are built from scratch) as we have expanded existing operations as much as we can," said Roberto Busato Belger, president of MBAC Fertilizer, which has recently moved into the Brazilian sector.

(AG)

© Copyright 2013 DTN/The Progressive Farmer. All rights reserved.