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COMPOUND FERTILIZERS IN SOUTH EAST ASIA

Peter SHADDICK
Fertecon, Singapore

Fertecon 1A Pine Grove # 02-04, 590001 Singapore Singapore Tel: 64 64646229 - Fax: 65 64635177 E-mail: shaddick@starhub.net.sg

(content as provided for distribution in Bali)

All the papers and presentations prepared for the 2007 IFA Asia-Pacific Crossroads in Bali will be compiled on a cd-rom to be released in December 2007.

Compound Fertilizers in South East Asia


Peter SHADDICK
Fertecon

Introduction In this paper I will review recent developments in the compound fertilizer markets of South East Asia. By compound fertilizers I mean all types of fertilizers which contain more than one nutrient. It is quite common to use the shortcut NPKs, and I will do the same to include the markets for NP, NK and PK fertilizers. I also do not limit myself to chemically combined or complex fertilizers as a large part of production and consumption is in the form of granulated and compacted compounds and bulk blends. However, I do not include dry mixtures because of the difficulty in measuring volumes but these are very important on plantation crops- with sales perhaps totaling 2 million t/y in Malaysia. There is limited AP production in south east Asia but DAP and MAP are important raw materials for many NPK producers so these are also included in my review. My focus is on the five largest fertilizer markets is South East Asia, namely Indonesia, Malaysia, Philippines, Thailand and Vietnam but it is worth mentioning that fertilizer demand does seem to be growing quite quickly in Cambodia, drawing in cross border imports from Thailand and Vietnam, while Myanmar has the same sort of agricultural potential as Thailand and will one day be up there as one of the major fertilizer markets in south east Asia. Exports of all types of compound fertilizers to these other South East Asian markets is estimated at about 200,000 t in 2006. Of the trends that are clear in the region the move from dry mixtures and straight fertilizer application to granulated and compacted NPKs for use on oil palm is probably one of the most important, because of the volume of fertilizer used on oil palm and the continued strong growth that is expected in the area planted with oil palm, especially in Indonesia. In Thailand and the Philippines we have seen a contraction in the production of ammonium phosphates, with the closure of the NFC plant in Thailand and reduced production by Philphos in the Philippines. Bulk blends have shown strong growth in Thailand, and these also form an important part of the supply of many NPK producers in Vietnam, and this has encouraged good import demand for DAP and MAP. On trade in compounds the main factor in recent years has been the growing importance of supply from the former CIS countries but China looks to have the potential to take a much bigger share of regional markets- especially if NPK product quality can be improved, and it will be interesting to see if tax measures introduced to limit exports of DAP, and from 2008 MAP, will lead to increased export shipments of NPKs until exports of these are also taxed. In presenting this paper my original aim was to highlight the main trends evident over the past 5 years and see where they would likely lead but in interviewing producers and importers around the region many queried what will be the impact on the industry of the very high prices seen for all fertilizers in 2007. What will high prices and tight supply for MOP mean to NPK producers and are the many NPK projects around the region supported with secured supplies of raw materials? Will there be more or less imports of NPKs? To what extent will patterns of demand be changed by the current high prices and high freight rates?

The year 2007 may well prove to be a watershed year with fundamental changes to the pattern of trade, production and consumption of all fertilizers and looking back over the past five years may not help us very much for our crystal ball gazing for 2008 and beyond.

Thailand Thailand has long been the biggest import market for NP-NPK fertilizers in South-East Asia but imports have declined from their peak in the mid1990s due to increased production in Thailand. There have been major changes in production over the past 5 years with the effective disappearance of two major NPK producers and a strong growth in the output of bulk blends. Thai Central Chemical Company (TCCC) has two steam granulation plants which TCCC says means a maximum production is about 800,000 tons. The one million t/y compound fertilizer complex of National Fertilizers Co. has closed and will not be restarted and the 600,000 t/y TFC granulation plant is all but closed, although there is the possibility that the new operators will continue partial operation of one of the 300,000 t/y lines. With the demise of NFC and TFC bulk blends have taken the lions share of the local compound fertilizer market and production of blends is estimated at about 1.3-1.5 million tons in 2006. Viking Thai, Mosaic International Thailand and Worldfert are the leading three blenders. Imports of NP and NPK fertilizers (excluding DAP/MAP) totalled about 1.9 million tons in 1995, representing the maximum quantity ever imported into Thailand., Imports fell in the following four years, rebounded to about 1.1 million tons in 2002 and totalled an estimated 900,000 tons in 2006. In 1996 imports of 16-20-0 came to 750,000 tons and accounted for 44% of all NP/NPK imports. The figure for imports in 2006 was a little over 300,000 tons representing 34% of NP-NPK imports. Most of the 16-20-0 is supplied by Namhae Chemical of Korea to Chia Thai. The main NPK grade imported is 15-15-15, with around 280,000 tons imported I 2006, representing 32% of all NP-NPKs. 16-16-16 remains an important grade but 16-16-8 has declined in importance. 13-13-21, 25-7-7 and 16-11-14 are some of the other main NPK formulations imported. In 2006 there were imports of about 380,000 tons DAP and 124,000 tons MAP, mostly used for NPK production but MAP imports will be much higher in 2007. Russia is the main origin for imports of 15-15-15 and 16-16-16, supplying close to 200,000 tons of these grades in 2006 and over 270,000 tons of all types of fertilizer. Norway remains an important source of a variety of NPK formulations supplying 215,000 tons in 2006. Finland has been a relatively important origin but with the takeover of Kemira by Yara we can expect to see Finnish NPKs diverted Asian to European markets. Looking forward it looks like being a tough year for importers of NPKs in 2008 with current price indications for imported NPK well above estimated costs of equivalent grades made by bulk blenders. High freights and more attractive netbacks in Europe should mean less West European and Russian NPKs shipped in Q1 2008 and we will have to see Korean exports to Thailand are similarly affected and if the reduced level of imports carries forward into the middle of the year. There is also speculation that with current high prices many farmers will cut back on fertilizer use in 2008 and will focus on applying urea at the expense of compound fertilizers.

Thailand exports NP and NPK fertilizers to its neighbours with about 80,000 tons of export declared in 2006, chiefly NPK to Myanmar and NP to Cambodia.

Philippines Production of NPKs in the Philippines reached 1.25 million t in 1996 helped by strong exports of over half a million tons as well as good consumption at home, but fell to around 830,000t in 2000 as exports were cut back. Today there are three producers of NPKs in the Philippines. Philphos with about 1,100,000t./y NP/NPK granulation capacity, AFC with a declared capacity of 350,000 of granulated and compacted compound fertilizers and Soiltech with a nominal capacity of 200,000 t/y bulk blends. Total Philippine compound production in 2006 is estimated at about 750,000 t, compared with 1.1 million t in 2003. Atlas is producing 300,000 t/y of compounds, close to capacity, Philphos produced 390,000 t in 2006 and Soiltech an estimated 70,000 t. 16-20-0 and 14-14-14 are the main compound formulations produced in Philippines for the local market with 16-16-8, 16-20-0, 18-46-0 and 14-34-0 being produced for export. Philphos was bought out of the public sector in 2000. The new management has pursued different policies from the former Government led management. In the pursuit of maximising profits it discovered that the company could make more money when production was reduced to the extent that in 2004 the highest profits for the Philphos group occurred with lower production of the Philphos plant when it operated at only 50% of capacity. The policy of reducing production has gone hand in hand with a greater involvement in the importation of straight fertilizers, especially urea. Philphos says it does not want to compete with cheap NPK imports, but does have the capacity to meet strong demand in the Philippines if prices are attractive. The policies adopted by Philphos for reduced production have allowed its competitors to increase market share but has also encouraged imports to increase. Imports of all types of compound fertilizers reached a peak of 330,000 tons in 2004 and are estimated at slightly over 280,000tons in 2006. Of this about 120,000t was in the form of DAP, 110,000t as NPKS and 40,000 t as NPs. Some of these imported compound fertilizers such as DAP are used as input materials by AFC and Soiltech to produce NPK fertilizers. Philippines exports of NPK, almost entirely coming from Philphos, were at a record high in 1996 of 507,000 t. In 2006 exports of NPKs is put at only 260,000 t but exports of all grades was around 326,000 t. Vietnam remains the main market for Philphos NPKs. In 2007, Philphos started introducing new grades and penetrating new export markets. Philphos produced 386,000 t of NP/NPK in 2006 and is expected to produce about the same volume in 2007. However, in the next 5 years, Philphos says it plans to operate at close to full capacity with 70% of its output being exported to Asia and Latin America. AFC produced around 300,000 t of NP and NPK fertilizers in 2006, expects about the same in 2007 and hopes for a similar volume in 2008, despite fears of lower consumption by farmers due to current high prices.

Vietnam Production of NPKs in Vietnam is estimated at about 2.5 million tons in 2006 with roughly one million tons produced in the north and the balance in the centre and south of Vietnam.

In terms of volume produced Lam Thao Fertilizers and Chemical Co (Lafchemco) is the largest producer with an output of about 600,000 tons in 2006. As with most NPK production in the north Lafchemco produces mostly low analysis formulations based on ammonium sulphate and SSP (basedon local phosphate deposits) as the main sources for N and P. In 2006 Binh Dien Fertilizers was the largest producer of compounds in the south of Vietnam with an output of almost 350,000 t compared with 315,000t for Southern Fertilizer Co (SFC) , 283,000 t for the Japan Vietnam Fertilizer Co (JVF) and about 200,000 t for Baconco. Five Star Fertilizers has a new 350,000t Chinese designed compound plant in Long An Province but is at present only producing at about half capacity. Binh Dien expects to produce about 420,000 tons in 2007 and increase this to 450,000 tons in 2008 when it consolidates all of its compound fertilizer production in the new Long An complex. SFC is also consolidating some of its production at its Hiep Phuoc Factory and by April 2008 says it will have a total production capacity of about 1 million tons, of which 400,000t tons will be steam granulation capacity. Until recently most of the compound fertilizer produced in south Vietnam was a form of bulk blend where typically granular urea, granular MOP and DAP are combined with a granulated filler. The compound fertilizer producers in the north are not using granular intermediates such as granular urea or granular MOP, and the phosphate source is usually SSP or FMP. But they are understood to be using some granulation for incorporating the SSP/FMP and fillers. However, it is probably more accurate to call most of the compounds made in the north as dry mixtures rather than bulk blends. JVF- a sister company of TCCC in Thailand and AFC in the Philippines, uses steam granulation while Baconco produces urea superphosphate and has a mix of granulation, compacting and blending. In the south of Vietnam the most popular grade remains 16-16-8 while in the north the main grade is 5-10-3. Compound fertilizer production is mostly in the form of NPKs but does include some NPs such as 16-20-0, 20-20-0 and 20-15-0, while in the north NK fertilizers are gaining in popularity. In1999 imports of NPK fertilizers were banned for most of the year so as to give some protection to the rapidly expanding compound fertilizer industry, and imports fell from the 440,000 tons delivered in 1998 to just over 130,000 tons in 1999. The import ban was lifted in early 2000 but compound fertilizer imports have never recovered this volume, reaching a maximum of 310,000 t in 2004. In 2006 there were imports of about 150,000 tons but the figure looks like being a bit higher in 2007. Historically Philphos has been the main supplier of compound fertilizers to Vietnam, shipping almost exclusively 16-16-8. The balance come chiefly from Korea and more recently China. Inputs from Vietnam traders suggest there is a significant trade of fertilizer between Vietnam and Cambodia with the fertilizer moving through the Mekong River system. This is both the re-export of imported fertilizers but increasingly is compound fertilizer produced in Vietnam. Vietnam is the largest market for DAP in south east Asia importing about 760,000 tons in 2006 for both direct application and as a raw material in NPK production. Most DAP use is in the south of the country with consumption in the north estimated at below 50,000 t/y. A 330,000 t/y DAP plant is now under construction in the north of Vietnam, outside of Haiphong and this is scheduled to complete before the end of 2008 although there is clearly not sufficient phosphate processing capacity in Vietnam to meet the demand for this plant and the existing 1.3 million t/y phosphate production in Vietnam (SSP and FMP) and rail capacity from the apatite mine at Lao Cai, near the Chinese border must also be expanded.
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Both rock processing and rail capacity will be increased but it seems unlikely that the DAP plant will be able to come anywhere near full capacity before 2010 and even then will it be able to compete with the huge DAP capacity across the border in China. There are some signs that demand for higher analysis NPKs is growing in the north and if this continues, and the pattern of usage falls more into line with what we see in the south, it will have a big impact on demand for DAP.

Malaysia Much of the fertilizers applied in Malaysia goes on plantation crops-perhaps accounting for 90% of all fertilizer use. This is largely in the form of mixtures, which can be considered as compound fertilizers in that they are multi nutrient fertilizers, although within Malaysia the term compound fertilizers is usually restricted to granulated and compacted fertilizers. The total market for mixtures and compounds is about 3 million tons with granular and compacted fertilizers accounting for about 1.2 million tons in 2006. Malaysian production of granular and compacted fertilizers in 2006 is estimated at about 1.1 million tons. CCM Fertilizers started production of compound fertilizers in Malaysia in 1966. The 280,000 t/y plant at Shah Alam, Selangor is the oldest and largest in Malaysia and is based on the production of nitric acid from imported ammonia ie producing a nitro-phosphate grade compound. CCM plans to further expand company NPK capacity in East Malaysia with a 150,000 t/y plant being built in Bintulu, Sarawak due to complete in 2008 , and a second planned in Lahad Datu in Sabah expected to be ready in 2010. The new capacity will be urea based. The company with the largest single plant capacity is Malaysian NPK Fertiliser Sdn Bhd now operating a 310,000t/y drum granulation NPK plant at Gurun, Kedah, adjacent to the PFK granular urea factory. Production was a little less than 190,000 tons in 2006 but will be lower in 2007. The plants first objective is to meet demand for the roughly 140,000 t/y NPKS supplied to Malaysian paddy farmers under a subsidy scheme which sees the fertilizer given away but as production problems are overcome the company will expand sales into the plantation sector and eventually they hope to build a second plant. The Agrifert (Kuoks) Group has the largest overall company capacity with four plants in operation with the capability to produce over 0.5 million t/y and a fifth in the planning stage for Sabah. Agrifert used steam granulation to produce about 350,000 tons on 2006 and plans to produce 420,000 t in 2007. In Pasir Gudang FPM produces about 250,000 t.y of NPKs with the first plant designed to granulate compounds based on urea and phosphate rock inputs-phosphate rock being preferred for most compounds used on tree crops where water soluble phosphate is less important. Union Harvest has a 100,000 t/y compacting plant in Kuantan-on the east coast of Peninsular Malaysia and has recently procured land in Lahad Datu to build a second plant. So far three companies have acquired land in the same industrial zone with plans announced to build NPK plants and Agromate is also widely believed to be planning a NPK plant in Lahad Datu. Although some of the expansions mentioned above may not take place there seems a good chance that by 20101-2011 NPK production capacity in Malaysia will easily exceed 2 million t/y with most-if not all of this increase taking place in East Malaysia, especially Sabah.

The expansion in capacity for the production of NPKs has been helped by relatively high prices for palm oil, which accounts for the bulk of fertilizer consumption in Malaysia, together with the problems of labour shortage in the plantations. Although plantations pay a higher price for the application of the same nutrients which can be delivered as straight fertilizer or mixtures, application of fertilizer nutrients in the form of NPKs can save time, ensure more accurate fertilization and assist with preventing disease. Imports of compound fertilizers into Malaysia have been fairly steady over the past three years close to 400,000 tons/year, chiefly of NPK fertilizers with 260-280,000 t/y imported. Imports of NK fertilizers are around 60,000t/y, NPs at about 20-25,000 t/y and DAP in 2006 upto 50,000 t. There has also been a growing export of NPKs to regional markets, and especially to Indonesia where many Malaysian plantation companies also operate palm oil estates. Malaysian customs figures show 200,000 t of NPK exported in 2004 and although 2005 and 2006 exports were lower 2007 looks like being a record year for exports.

Indonesia Petrokimia Gresik produced 416,000 to of NPK in 2006, making it the largest producer in Indonesia. Petrokimia has four units, the 330,000 t/y Phonska complex fertilizer plant, a 100,000 t/y steam granulation unit, 60,000 t/y bulk blending and a revamped TSP/SP 36 plant which has the ability to produce upto 480,000 ty of complex NPK. Petrokimia used to produce DAP but production ceased in 2005. Petrokimia will add another 300,000 t/y of NPK capacity by 2009 and may add more capacity by revamping the second TSP/SP36 plant. In 2006 Petrokimia Gresik sold 600,000t NPKs but it is targeting sales of 925,000t in 2008. By 2010 the company believes Indonesian demand for NPKs will be at 1.7 million tons and this could rise to 4 million t/y by 2015 as farmers are coming to see the advantages of balanced fertilizer. The Wilmar Group, with Sentana, which is involved in oil palm plantations in Indonesia, has built a 120,000 t/y granulated compound fertilizer plant at Dumai, Sumatra, using Indian technology and is now operating a second 330,000 t/y ammonium phosphate plant, also in Dumai. The group reported sales of 150,000 t NPK in 2006. PT Agri Indomas (part of the Agrifert-Kuoks Group) operates a 180,000 t/y drum granulation plant in Palembang, at the PUSRI complex where there are 4 prilled urea plants. A second unit is under construction in Surabaya and due on stream towards the end of the second half 2008. PT Pupuk Kalimantan (Kaltim), which has 3 prilled and 2 granular urea plants in Bontang, East Kalimantan has built 5 bulk blending plants, located at Bontang,-East Kalimantan, Surabaya, Cirebon, Semarang in Java, and at Gorontalo in Sulawesi. each with a capacity of about 60,000 t/y. Kaltim is now in the planning stage for adding a 200,000 t/y steam granulation plant at Bontang. CCM of Malaysia has plans to build two NPK plants in Indonesia and the first, in Medan, Sumatra is scheduled for completion in 2009. For many years, sales of urea, TSP and MOP to Indonesian farmers were subsidised which discouraged the use of compound fertilizers. Urea, ammonium sulphate, and Phonska NPKs are subsidised today which continues to distort the market for nutrients, although the subsidised fertilizer is suppose to be restricted to the food sector.

The subsidies on straight fertilizers were not meant to apply to the plantation sector which has always imported NPKs. As many of the oil palm plantations in Indonesia are owned or managed by Malaysian controlled companies, the pattern of Malaysia fertilizer use has been copied, which in turn has meant fairly large sales of Malaysian NPKs to Indonesia. Other Asian suppliers are South Korea, China and the Philippines. The main European compound fertilizer producers, BASF, Yara and Kemira, have all established a presence in the Indonesian market, taking the longer term approach of building up brand names. Indonesia has the youngest NPK industry in South-East Asia and yet it is the leading nation in the region for total fertilizer production and use. In a relatively short space of time we have seen a significant expansion of NPK production capacity to serve both the food and plantation sectors. For the food sector the target is increased food production through higher yields, which the Ministry of Agriculture feels can easily be achieved with the existing planted area, if fertilizer application is improved to give the nutrients required. Present fertilizer application on the main food crops generally uses enough nitrogen, but is deficient in phosphate and especially potash. Even greater increases in fertilizer consumption can be expected in the oil palm sector and if Indonesia follows the lead of Malaysia this will see large scale use of compound fertilizers on Indonesian Palm oil plantations. In addition to the reasons advanced for greater NPK use in Malaysia- poor infrastructure in outlying areas is a given a main driver for switching to NPK production as it is easier to ensure delivery of one type of fertilizer to remote locations than it is several types. The area planted with palm oil in Indonesia has reached 6 million ha, exceeding that of Malaysia, and a further expansion is considered likely perhaps reaching 9 million ha by 2015. This expansion of the area under palm oil plantations in Indonesia will have huge implications for fertilizer use in Indonesia and seems set to ensure that Indonesia will probably develop to become the biggest market for NPKs in South East Asia.

Outlook for 2008 The expansion of NPK production capacity in both Indonesia and Malaysia is largely tied to the expectation of increased sales of granulated NPKs to the oil palm sector where the planted area-especially in Indonesia is set to continue to increase. Current prices for oil palm are high enough for plantation owners to be able to shrug off high fertilizer prices. High crude oil prices will further help boost demand for palm oil as a raw material for bio fuels, although it can be argued that the efficiency of oil palm production-allowing 6 and maybe upto 8 tons of palm oil per hectare means that oil palm has the potential for meeting an increasing share of the world growth in oilseed demand. The same strength of demand cannot be seen in other sectors and in Thailand, Vietnam and the Philippines and there are widespread concerns that fertilizer demand will be cut back as fertilizer prices reach new highs. In Thailand there are worries that NPK sales will be cut back in favour of urea and TCCC may be under pressure to compete with bulk blends. In Vietnam, something of the opposite has occurred in recent years with urea sales declining in favor of NPK sales, which can be attributed in part to better extension work in Vietnam encouraging to cut back on excessive use of nitrogen. Nevertheless farmers here and throughout the region will also be facing cost pressures and can be expected to cut back on nutrient use and this may encourage NPK produces to adjust their product mix to get the best deals on raw material prices to stay competitive in the market.

As this paper is written prices of Russian 16-16-16 have gone above US$ 400 per t fob and point to cfr costs in South East Asia at US$ 500 per t and above which will likely make local blends and NPK products more competitive-despite also having to face rapidly increasing raw material costs. No-one can escape higher potash prices but South East Asian markets do perhaps have some cost advantages for the purchase of ammonium phosphates from China, and for urea from China, Indonesia and Malaysia. In 2007 we have seen imports of MAP from China increase as buyers seek to take advantage of the lack of export tax on MAP, but this is will change in 2008 when exports of MAP will be taxed in the same way as DAP. In 2006 exports of all forms of compound fertilizer from China were close to 1.3 million tons, not much different from 2005, but for the 10 months to the end of October 2007 compound fertilizer exports in all forms are close to 4 million tons. Of this 3 million tons is accounted for by DAP and MAP exports but exports of NPKs stand at a little over 0.5 million tons with half of this aimed at south east Asia while exports of various NP fertilizers are up to 335,000 tons, of which 250,000 tons was shipped to south-east Asia. I think we can expect this growth of Chinese NP and NPK sales to South East Asia to continue-until such time export taxes are adjusted in China to cover all these products. But even with export taxes, the huge capacity for NPK production in China, based on mostly domestic phosphate and nitrogen could mean that China will take a ever growing share of the markets for NPKs in this region.