How the South American Fertilizer Landscape has changed

May 8, 2016

We have seen dramatic changes in the last two years.  The United States is now exporting LNG (the first shipment of LNG left the country in February 2016) and Iran’s oil sanctions were lifted during January 2016.  However, the most important change has been the dramatic drop in crude oil prices.  On a YTD basis, prices declined from $107.54 per barrel to $39.47 per barrel during March, and have been below $30 per barrel for short periods.  As a result, many companies have re-evaluated investment decisions, particularly in those countries dependent on revenues from oil exports.  Since 2014, projects around the world have been cancelled or postponed throughout many sectors (including fertilizers).  Amongst all of these changes, it is estimated that the world’s population will have increased by 164 million people between 2014 and the end of this year.

The arable land and fertile soil found in countries within the Latin region make fertilizers (i.e. ammonia and urea) one of the most valuable products in South America.  Prior to 2014, South American economic development, improvements in infrastructure, ample supply of natural gas, and fast growing fertilizer demand helped draw interest from potential fertilizer investors.  As a consequence, several capacity developments were planned in the fertilizers sectors of Brazil and Bolivia.  However, most projects have been cancelled or postponed as a result of the drop in crude oil prices and the associated regional economic downturn.  This situation was exacerbated by other problems, such as political and construction problems.

The graph illustrates the outlook for ammonia firm capacity foreseen in Brazil and Bolivia both before the drop in crude oil prices, and after the crash in crude oil prices.

Brazil has halted its planned ammonia capacity additions.  Petrobras had planned to build three projects in the country.  The first project, which was close to 80 percent completed before being stopped due to problems with the contractor, was a 716,000 ton ammonia plant in Tres Lagoas (in the state of Mato Grosso do Sul).  It is not clear when construction will restart.  The second project was a 520,000 ton per year ammonia plant in Uberaba (in the state of Minas Gerais). This project has been postponed.  The third project was an ammonia-urea integrated plant (the company did not plan to sell any merchant ammonia) which was planned in Linhares (in the state of Espirito Santo).  It is believed that this project has been cancelled.

In Bolivia, YPFB’s integrated ammonia/urea plant is currently under construction.  The 400,000 ton ammonia plant is located in Bulo Bulo (in the department of Cochabamba).  While the complex was set to come on-stream in the first quarter of 2016, the latest forecast is that the plant will begin production in the last quarter of this year.

As the YPFB plant is currently the only new ammonia investment in the region coming on stream, and no new plans have been publically announced in the region, there are potential opportunities for new investors.  Of course, the main challenge would be access to gas supply.  However, countries such as Peru and Argentina are eagerly trying to develop their resources with industrialization plans that would give either of them a feedstock advantage to potentially develop a fertilizer complex.  It is only a matter of time before the South American fertilizer landscape changes again, and plans for new fertilizers plants are announced in the region.  While not for the faint of heart, perhaps now is the time for investment so that new facilities can start up during the next upturn.