The Integer View 05 September 2017 - Low fertilizer price erodes producers profit; Elandsfontein project stalls; BHP - Jansen project update - Integer
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The Integer View 05 September 2017 – Low fertilizer price erodes producers profit; Elandsfontein project stalls; BHP – Jansen project update

Posted On: 05-09-2017 By: Grahame Turnbull

Low fertilizer price environment continues to erode earnings for major N and P producers

By Benjamin Treadwell – Nitrogen Analyst
Ben.Treadwell@integer-research.com

The extended period of relatively weak global fertilizer pricing continues to show up in weaker earnings. Most companies have seen a significant turn down in profit numbers in the second quarter of 2017, including the largest industry producers.

Norwegian producer Yara saw its Q2 2017 net profit drop 77% year on year to US$86 million, citing significant global oversupply of nitrogen and persistently low prices through the quarter. Yara’s revenues were reduced by 9%.

US producer Mosaic, has also seen its earnings suffer from the fundamentally weak market, particularly in the Phosphates segment, such that Moody’s has placed the company under review for a possible debt downgrade.

Even producers at the low end of the cost curve are feeling the pain. Saudi Arabian producer SAFCO reported a fall in profits, dwindling by a third in Q2 2017 when compared with the same period in 2016. The company cited weak nitrogen pricing and reduced urea sales as the core reason for the reduction.

With market balances, still fundamentally weak across the fertilizer business, prospects for producers being able to pull earnings up over the coming quarters remain on unsteady ground until a sustained increase in prices and rectification of oversupply occurs.

Read more on Integer’s Nitrogen Cost and Profit Margin ServiceNitrogen 10-Year Outlook Service and watch our N webinars at Integer’s Nitrogen Webinar Page

 

Elandsfontein project stalls on technical issues

By Ibi Idoniboye  – Head of Phosphate and NPK Analysis
ibi.idoniboye@integer-research.com

In mid-August 2017, phosphate rock project developer Kropz released a statement stating an extended delay in commissioning at its Elandsfontein phosphate rock project in South Africa. The 1.5 million tonne per year merchant rock project was expected to start production in Q2 2017, ramping up to full capacity within a few months. However, the project has been delayed indefinitely with the owners pointing at licensing and technical issues.

The Elandsfontein project is noteworthy in that it is one of very few greenfield rock projects to have secured the requisite start-up capital that stall most projects at financing stage. High capital cost and location risk are typical constraints for numerous other junior African phosphate projects. The Kropz project has overcome these hurdles and benefits from a beneficial geographic position, close to Brazil’s growing phosphate import market.

We recently assessed global phosphate projects as part of the Phosphate Cost and Profit Margin Service and mooted Elandsfontein as the most likely project to go ahead. Although phosphate prices have weakened in the recent period, start-up delays appear to be connected to technical issues. Local news reports indicate that the technical issues relate to difficulties the company is having with licensing for water used in phosphate processing.

The producer has faced resistance from various groups in opposition to the project, citing potential environmental threat to the Langebaan Lagoon, which sits adjacent to the mine site.  The West Coast Environmental Protection Association (WCEPA), is currently involved in a court case against the Department of Mineral Resources seeking to have Kropz environmental license revoked.  Kropz expects to retain its license.

Read more on Integer’s The Chinese Phosphate Industry, addressing the global impactPhosphate Cost and Profit Margin ServicePhosphate Rock Outlook Report and watch our P webinars on Integer’s Phosphate Webinar Page

 

BHP won’t make decision on Jansen before 2019

By Rebecca Hayward – Lead Potash Analyst
Rebecca.Hayward@integer-research.com

“BHP Billiton puts brakes on potash mine”; “Shale may be gone but BHP won’t ditch potash”; “BHP eyes Canadian potash exit” – news surrounding BHP’s plans for building the world’s largest potash mine in Saskatchewan is lacking consistency as industry commentators struggle to agree on interpreting BHP’s latest plan to ‘delay’ deciding on the plan for Jansen. In August, BHP announced that it would not be seeking board approval for a further financing to bring the 10 million tpy MOP mine to production, until after 2018.

The company is clearly still keeping its options open. BHP will spend US$500 million to complete the construction of its two mine shafts by the end of 2019, which it reports would otherwise collapse. In an investor presentation, the company reported that it could delay, bring in a partner/s, divest or optimise the project and Reuters has subsequently reported that BHP is considering selling a 25% stake in the project.

To us, the latest announcements are of relatively little significance. BHP’s longstanding narrative for Jansen is to make a counter-cyclical investment in order to be positioned in the market (with what is claimed will be the largest and lowest cost mine in the world) for the time when demand growth outpaces supply, and the market transitions to an upward cycle. So our view remains that the Jansen mine is most likely to make an appearance in the potash industry in the latter half of the 2020s.

Read more on Integer’s Potash Market Service or SOP Outlook Report and watch our K webinars on Integer’s Potash Webinar Page

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