The International Fertilizer Industry Association released a summary report titled, "Medium-Term Outlook for Global Fertilizer Demand, Supply and Trade 2008-2012" after its 76th annual conference in Vienna, Austria this year. The following includes excerpts from the report, which provide short-term prospects, medium-term fertilizer demand outlook, global fertilizer supply and global nitrogen capacity and balance.



Short-term Prospects
In response to very attractive agricultural commodity prices in 2007 and the first half of 2008, as well as to policies promoting fertilizer use in many Asian countries and favorable weather conditions in the northern hemisphere over the past few months, global fertilizer demand is seen as up 4.1 percent in 2007/08. World demand would reach 169.4 million metric tonnes (Mt) nutrients, compared to 162.7 Mt the year before. Potash consumption would increase by 6 percent, compared to 4 percent for nitrogen and 3 percent for phosphate. At the regional level, demand is seen as surging in Latin America (+12.8 percent) in response to very favorable crop prices. It is also projected to rise in Eastern Europe and Central Asia (+6.3 percent), East Asia (+6.1 percent), South Asia (+3.4 percent) and Western and Central Europe (+2.0 percent). Consumption would stagnate in Africa, and drops are anticipated in West Asia (-6.3 percent), North America (-1.3 percent) and Oceania (-0.5 percent).



Together with world population increase and average income growth in emerging Asia,biofuel production is one of the key drivers of the outlook. However, the direct contribution of biofuel crops to world fertilizer consumption is relatively modest. Worldwide, it is estimated that some 4.1 Mt nutrients is applied to crops used as biofuel feedstock. Crops grown for biofuel purposes would account for some 2.4 percent of world fertilizer applications in 2007/08. The impact of biofuel production on world fertilizer demand is mostly indirect through its influence on international cereal, oilseed and sugar prices, which provide strong incentives for increasing fertilizer application rates on crops grown for food or feed purposes.



With market conditions expected to remain exceptionally favourable in the coming months, global fertilizer demand is projected to further grow in 2008/09 by some 3.1 percent, to reach 174.7 Mt. Contrary to the previous year, growth in demand is forecast to be stronger for nitrogen (+3.6 percent) than for phosphate (+2.7 percent) and potash (+2.2 percent). The fertilizer market is anticipated to expand in all the regions but West Asia (-0.5 percent), with Oceania (+5.0 percent) and Eastern Europe and Central Asia (+4.9 percent) recording the highest year-on-year growth rates. Consumption growth would be modest in Western and Central Europe (+0.6 percent). In all the other regions, demand is seen as up by 3 to 4 percent from the previous year.



Medium-term Fertilizer Demand Outlook
In the medium term, world fertilizer demand is projected to grow steadily. Compared to average consumption between 2005/06 and 2007/08, global demand in 2012/13 is seen as increasing by 3.1 percent annually on average, to reach 194.3 Mt. In view of anticipated tighter market conditions for phosphate and potash vs. nitrogen, as well as the need to boost yields to meet world food, feed, fiber and biofuel requirements, nitrogen demand is seen as rising slightly faster (+3.2 percent p.a.) than consumption of potash (+3.0 percent p.a.) and phosphate (+2.8 percent p.a.).



At the regional level, the bulk of the increase in demand is forecast to come from Asia and, to a lesser extent, from Latin America. South Asia and East Asia together would account for two-thirds of total growth. If Latin America is added, the three regions together would account for 81 percent of the increase in demand in the next five years.



Global fertilizer demand prospects in the medium-term look bullish, with global consumption expanding at an annual rate of 2.7 percent between 2008 and 2012, which is above the five-year average growth rate of the past decade. World fertilizer consumption is projected at 173.5 Mt nutrients in 2008, reaching 193.1 Mt in 2012.



The supply of raw materials has become tight, boosting production rates and resulting in higher prices for intermediates and finished fertilizers.



In early 2008, several exporting countries implemented export taxes on fertilizers, exacerbating the prevailing tight supply situation and adding upward pressures on prices.



Fertilizer prices have increased dramatically since the beginning of 2008, generating concerns over possible demand destruction in the short term. A combination of factors explains the rapid increase in fertilizer prices. The main ones are a surge in agri-commodity demand and prices, resulting in a major increase in fertilizer demand over the past two years; rising energy costs and ocean freight rates; higher steel and equipment prices; a shortage of specialized labor; a historical lack of investments in the fertilizer industry; and the recent devaluation of the U.S. dollar.



Global Nitrogen Capacity and Balance
During the period 2007 to 2012, nitrogen capacity developments will be shaped by the cost differential of feedstock between regions, governments' policies fostering downstream developments from the hydrocarbon sector, industry's desire to improve factories' energy efficiency and, more recently, strong demand projections.



According to the IFA 2008 world capacity survey, global ammonia capacity will increase from 176.3 Mt NH3 in 2007 to 210.3 Mt NH3 in 2012. One-third of this increase will come from revamping activities. The remaining two-thirds will be generated from the commissioning of close to 50 units worldwide, of which half will be located in China.



In terms of regional distribution, the bulk of capacity growth will occur in East Asia (mostly China), West Asia, EECA, Africa (Egypt and Algeria) and South Asia (India and Pakistan). Ammonia capacity is tentatively projected to increase in North America by 2013 and would be relatively static in Europe and Oceania.



Between 2007 and 2012, world nitrogen supply is projected to expand from 134.4 Mt N in 2008 and 156.2 Mt N in 2012. Taking into account nitrogen fertilizer uses, industrial uses and distribution losses, global nitrogen demand would reach 131.4 Mt N and 146.7 Mt N in 2008 and 2012, respectively.



IFA estimates that the global nitrogen supply/demand balance will show a surplus of 3.0 Mt N in 2008, rising to 9.5 Mt N in 2012. However, the potential surpluses in 2008 and 2009 are equivalent to 3 per cent of global supply, a level which could be considered as marginal when taking into account idle capacity and unexpected plant outages.



Source: Medium-Term Outlook for Global Fertilizer Demand, Supply and Trade 2008-2012, Summary Report, Patrick Heffer and Michel Prud'homme, International Fertilizer Industry Association.