CRU: The Effects of Vertical Integration in the Fertilizer Value Chain on Producers

CRU: The Effects of Vertical Integration in the Fertilizer Value Chain on Producers

PR Newswire

LONDON, Jan. 28, 2019

LONDON, Jan. 28, 2019 /PRNewswire/ --

International fertilizer producers have had to come to grips with a bear market since 2011. Falling market prices in the face of ongoing capacity additions have applied significant pressure to producers' margins.

The effects of vertical integration in the fertilizer value chain on producers
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While there are now price signals that the market is turning a corner, margins remain under strain. Some proactive producers have used this market pressure to justify a redefinition of their market strategies in fundamental ways with the objective of protecting margins and securing future growth.

Intensification of competition has encouraged some producers to innovate and to integrate vertically

Fertilizer capacity expansions have significantly exceeded demand growth across nitrogen, phosphate and potash markets between 2010 and 2018. Relatively high fertilizer prices in the preceding years attracted a wave of investment, pushing all three markets into over-supply and depressing global operating rates. The effects have played out in fertilizer prices: a simple aggregate in real terms of urea, DAP and potash market prices points to a 44% decline in fertilizer prices between 2011 and 2016.

Over the same five-year period, production costs have remained approximately flat according to an index of labour, power and consumable costs in major producing regions which based on data from the CRU Economics team. However, costs have been fluctuating and growing strongly, in particular since 2016. Indeed, the increase in fertilizer market prices since 2016 can to a large extent be attributed to cost inflation in marginal supply regions rather than a sudden improvement in the global market balance.

The squeeze on margins that has resulted from these market dynamics has encouraged producers to re-examine their market strategies and to innovate to survive an intensified level of competition. At CRU Consulting we have observed first-hand and worked with producers in their quest to reclaim lost margins in creative ways.

In some cases the focus has been on reviewing their product offering; there has been increased attention paid to specialty fertilizers in particular. This can be viewed as an opportunity to harness existing mineral resources to produce higher value products. CRU Consulting has worked with a number of producers to review entry opportunities in a range of these markets including NPKs, NP+S and soluble fertilizer products. The effects of this trend are immediately visible from the product offerings of the major fertilizer producers. Product portfolios previously focused on DAP, MAP and TSP have now expanded to include a broad range of NPK formulations, many including trace elements, intended for specific crops or soil types.

Read the full story: https://www.crugroup.com/knowledge-and-insights/insights/2019/what-does-vertical-integration-in-the-fertilizer-value-chain-mean-for-producers-strategies/

Read more about CRU: http://bit.ly/About_CRU

About CRU

CRU offers unrivalled business intelligence on the global metals, mining and fertilizer industries through market analysis, price assessments, consultancy and events.

Since our foundation by Robert Perlman in 1969, we have consistently invested in primary research and robust methodologies, and developed expert teams in key locations worldwide, including in hard-to-reach markets such as China.

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