Financial crisis hammered industry; some countries eager to invest in facilities
By MATEUSZ PERKOWSKI
Global demand for fertilizer appears to be on the rebound after being stymied by the recession, according to an industry group representing manufacturers and distributors.
Total consumption of crop nutrients is expected to rise by about 5 percent in the coming year, according to a report from the International Fertilizer Industry Association.
"We're seeing recovery in demand," said Erin FitzPatrick, a fertilizer analyst with Rabobank. "Farmers are coming back and increasing their application rates."
During the worst part of the financial crisis of 2008 and 2009, annual fertilizer demand dropped by about 7 percent, according to the report. Since then, sales have grown by nearly 4 percent and seem to be picking up steam.
"A return to more stable commodity prices makes it less risky for farmers to invest in fertilizers than a year ago," the report said.
The lack of demand for fertilizer during the recession caused manufacturers to interrupt, postpone or cancel projects aimed at increasing output, the report said. This dynamic was more pronounced in phosphate and potassium fertilizers than in nitrogen.
Some manufacturers put off projects due to the rapidly changing economic fundamentals of the fertilizer industry, while others simply couldn't get financing to expand due to the credit crunch, FitzPatrick said.
"Money was tight," she said.
Even so, the interest in manufacturing growth has been revived, particularly since many countries are trying to become more self-sufficient with crop nutrients, the report said.
"While some of them are delayed, capacity projects are still in the works," FitzPatrick said.
Manufacturing capacity won't increase as much as previously expected, but farmers probably don't have to worry about fertilizer shortages, she said.
Although consumption of nitrogen, potassium and phosphate is projected to grow substantially over the next several years, the supply is expected to stay well ahead of demand, the report said.
Fertilizer prices are unlikely to surge as they did during the commodity boom in 2007 and 2008, FitzPatrick said.
At that point, fertilizer prices were largely determined by demand from farmers, she said. For the foreseeable future, manufacturing costs are expected to play a stronger influence.
"We're not seeing crop prices spike as much as they had, when farmers could afford to pay more for fertilizer," FitzPatrick said.
In other words, moderate commodity prices will probably prevent farmers from bidding up fertilizer prices.
However, the global fertilizer market is affected by non-economic factors.
China and India are large consumers of crop nutrients, so their internal subsidy schemes will affect the total world supply, FitzPatrick said.
It's also important to remember that fertilizers don't go straight from manufacturers to farmers.
Distributors and retailers still face a lot of uncertainty, she said.
Such companies were left holding a lot of expensive inventory when fertilizer prices fell in the wake of the financial crisis, FitzPatrick said. "The retailers are hesitant to restock volumes to the same level."
To see the full version of the International Fertilizer Industry Association's report, go to www.fertilizer.org and click on the "Fertilizer Outlook 2010-2014" link at the top of the page.