Market Talks: Brazilian fertilizer dependency to continue

Author Argus

Brazil has launched discussions to boost the output of fertilizer and inputs for the domestic agriculture sector, but progress remains slow with dependency on imports strong. Difficulties in negotiating for the natural gas needed for nitrogen production is one of the reasons for the low Brazilian fertilizer production.

Join Camila Dias, Argus Brazil Bureau Chief, and Kauanna Navarro, reporter of the Argus Brazil Grains and Fertilizer publication. They discuss why the Brazilian fertilizer dependency may continue.

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CD: Hello and welcome to 'Market Talks' - a series of weekly podcasts produced by Argus discussing the main events impacting the commodities and energy sectors in Brazil and around the world. My name is Camila Dias, Argus Brazil bureau chief. In today's episode, I talk to Kauanna Navarro, a reporter for the Argus Brazil Grains and Fertilizer publication, about Brazil’s dependency on imported fertilizers. Welcome, Kauanna.

KN: Thank you, Camila. It is a pleasure to be here.

CD: Kauanna, Brazil recently launched discussions to boost fertilizer production as well as domestic fertilizer inputs for the agriculture sector. Why? How dependent is Brazil compared with other countries on this topic?

KN: Brazil is one of the top four consumers of fertilizer globally. The country's demand for NPK fertilizer in 2020 reached 41mn t, with imports comprising 80pc of this. Meanwhile, national production registered its lowest volume in years, decreasing by 11pc from 2019.

CD: Wow. So, we need to import 80pc of everything we use? How does this affect Brazilian competitiveness?

KN: It affects us in many ways. In years that global demand is slow, we don't have many concerns about getting fertilizer. But, in higher-demand years -- such as the current one we are in -- Brazil becomes very vulnerable to market oscillations. For example, China and Russia, two important Brazilian suppliers especially for phosphates, are restricting exports and it can be hard to get the total volume we need for the next soybean crop. 

CD: But China is also our main soybean consumer. It's interesting that China supplies Brazil with fertilizer, isn't it? 

KN: Yes, but Brazil is not the only supplier of soybeans to China. And now that the trade war between China and the US has cooled, China will need less soybeans from Brazil than in the past two seasons. We cannot disregard market competition nowadays. The country that pays more takes the product. And our phosphate scenario is not the worst in all NPK production. 
Phosphate is the main component of current NPK production in Brazil. In 2020, Brazil produced about 6mn t of phosphates, almost 90pc of the total fertilizer produced in Brazil. It is possible to apply technology to increase phosphate output, but the remaining amount of phosphate deposits limits its growth potential. 

CD: You mentioned that national production decreased in 2019. What happened? 

KN: The decrease in fertilizer production is primarily the result of more idle periods at production units and the shuttering of some units. Brazil's state-controlled Petrobras approved a shutdown of the ammonia and urea production plant in Araucária in Parana state at the beginning of 2020 because of financial losses at the unit. In 2019, Petrobras shut two other urea production plants, in Laranjeiras in Sergipe state, and Camaçari in Bahia. In August 2020, they were leased by Unigel under a 10-year contract. Petrobras also has a nitrogen unit in Parana, the second-largest grain producing state. In September 2020, the company affirmed its intention to sell its Araucaria Nitrogenados fertilizer unit. 

CD: If Brazil is such a larger consumer, why is national production decreasing? 

KN: All of Petrobras's units produce nitrogen. To produce urea in Brazil, we use natural gas. And it was always a huge problem for national production. Petrobras has been trying to find a buyer for its fertilizer facilities, which include the Bahia and Sergipe units and an unfinished unit in Mato Grosso do Sul state, since 2018. Petrobras is the only option for natural gas suppliers for potential buyers.

CD: But the scenario may change as Brazil is about to open the natural gas market.

KN: Yes and no. The timing is terrible. The Brazilian natural gas market is on the verge of opening, with a reduction of Petrobras' role and a new law approved in April, which can be good news for fertilizer producers. This process includes the possibility of gas supply contracts in the open market made directly with gas producers, marking a shift from gas supply only coming from local gas distribution companies. 

But the gas difficulties have increased a lot in recent weeks. Ammonia production costs in Europe eclipsed $1000/t in October, peaking above $1200/t, and didn’t fall below $1000/t again until the first week of November. Prices in other regions are also rising where marginal gas supply is provided by LNG. Fertilizer prices are not keeping pace. The current situation boosted cfr granular urea prices by more than $200/t at Brazilian ports in the last month.

CD: So you’re telling us it will be difficult to see Brazilian dependency getting smaller?

KN: It's complicated. The government is studying ways to reduce our dependency. But, until then, we don't have any concrete plan. It will demand high investments in infrastructure. Our current nitrogen units are obsolete. And then there are the natural gas problems. 

CD: Thank you very much, Kauanna.

This and other episodes of our podcast are available on the Argus website at Visit the page to follow the events that affect global commodity markets and understand their developments in Brazil and in Latin America. We'll be back soon with another edition of “Market Talks”. See you soon!

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