Regional Market Outlook on Fertilizer Industry Brazil

An ordinance was passed by the Brazilian Army Logistics Command regarding the handling and storage of nitrogen fertilizers. The new legislation requires blenders, plants, and resellers to have a license to purchase AN, but exempts farmers from this requirement. Market participants must comply with the new legislation by March 2019

Brazil will have a new specific regulation for chemical substance control (including fertilizers). The main aim is have similar regulation to Canada (less punitive, and less expensive for companies, with the objective of replacing dangerous products and set guidelines on appropriate applications).

Cost Structure: KCL, MAP and Urea

  • Raw material is the major cost driver, which contributes to about 80–85% for Potassium Chloride and MOP
  • Utilities cost includes electricity and water. It contributes approximately to 3–7% of the total cost. The impact of utilities cost is observed to be low to medium in the final cost
  • Depreciation and SG&A are considered in other cost, which contributes to 5–10% of the total cost
  • Labor cost contributes to about 3–7% of the total cost, with labor wages in Brazil witnessing an increasing trend. The trend is expected to continue to increase the cost marginally in 2019

Cost Structure: Ammonium Sulphate, Ammonium Nitrate, Calcium Nitrate

  • Ammonia is the key cost driving raw material, contributing to the three fourth of the total raw material cost
  • The price for ammonia in Europe is cheaper by 1–3% when compared to the US and Asia
  • Utility cost includes electricity and water. It contributes to approximately to 2–4 % in the total cost of fertilizer

Cost Driver: Ammonium Sulphate, Ammonium Nitrate & Calcium Nitrate

Downstream Demand

  • The growth in demand for the fertilizer has surpassed Brazil’s production capacity, leaving them heavily dependent on imports
  • Increasing the domestic production share of total sales require investments in production and logistics infrastructure
  • The growing population in Brazil and increase in arable land are expected to increase the demand for ammonia in the fertilizer segment

Regulations

  • Several terrorist act in the past few years involved the use of ammonium nitrate, compelling the government to revamp stern regulations toward the utilization of the product. According to the Brazilian Army Logistics Command, the new legislation would require blenders, seedlings, and resellers to obtain licences for all nitrogen related fertilizers. This may lead to lengthen the import process, as well as adding costs

Feedstock

  • The cost of ammonium nitrate can be primarily driven by two main raw materials; Ammonia/ Nitrogen. The nitrogen content in the raw material would be around 50–70%. It would also depend on ammonia, as it entails acid base reaction with Nitric Acid
  • The ammonia price is expected to increase in October and November, as the farmers prefer to apply the fertilizers to their crops during that time