Market Talks: Global fertilizer producers tighten their grip on the Brazilian market

Author Argus

Acron, Eurochem, Nutrien, OCP, and Uralkali move their pieces on the board of the Brazilian corporate market.

The country is on its way to have more fertilizer blenders and distributors with a foreign controlling share, at a time when the government studies to expand national fertilizer production.

Join Camila Dias, Argus Brazil Bureau Chief, and Renata Cardarelli, reporter for the Argus Brazil Grains and Fertilizer publication. They talk about the processes to sell Brazilian companies’ controlling shares and the growth of foreign market share in the domestic market.

Stay in touch with the fertilizers market. Find out more.


Transcript

Camila Dias: Hello and welcome to ‘Market Talks’- a series of podcasts presented by Argus addressing the events impacting commodities and the energy sector in Brazil and around the world. My name is Camila Dias, Argus Brazil Bureau Chief. In today's episode, I talk to Renata Cardarelli, reporter for the Argus Brazil Grains and Fertilizer publication, about global fertilizer producers tightening their grip on the Brazilian market. Welcome, Renata.

Renata Cardarelli: Hello, Camila. It is a pleasure to be here.

CD: Renata, Eurochem agreed in December 2021 to purchase 51.48pc of Brazilian fertilizer producer Heringer. What happened so far and what would that deal mean?

RC: The sale of a controlling stake in Brazilian fertilizer producer Heringer to Russian Eurochem could increase competition in Brazil and grow Russian market share in our market, Camila. The deal would increase NPK blend production in the country and strengthen Heringer, which has market share in all agricultural regions in Brazil. At the same time, the deal would increase the foreign control of the Brazilian fertilizer market.

CD: Could you detail Eurochem’s move to purchase Heringer, Renata?

RC: Sure, but let’s go back a while, Camila, because Heringer’s process to sell its controlling share is almost a novel. During 2018, Nutrien was long thought to be negotiating to buy Heringer but could not settle on a price. The companies never publicly confirmed any discussion, but market sources affirm that Nutrien lost interest when Heringer entered into a reorganization plan in the Sao Paulo bankruptcy court. And it was not the only time negotiations for Heringer control sale failed. In 2020 Heringer tried to sell the control of the company to Russian Uralkali and Uralchem, but the deal collapsed around one month after the Brazil's antitrust regulator Cade approved the sale.

But this time the end of the story can be different. The latest decision is from 25th January, when Brazil’s antitrust regulator Cade approved, without any restrictions, the sale of Heringer’s controlling share to Russian Eurochem. The two companies will have around 20pc share of the total Brazilian fertilizer market, the regulator said in its decision. And let’s remember: Heringer already has international companies as important stakeholders of the company. Nutrien owns a 9.5pc stake in Heringer, while Moroccan OCP has a 10pc stake.

CD: Correct me if I’m wrong, Renata, but Eurochem already has a controlling stake in another company, is that correct?

RC: You’re absolutely right, Camila. Since 2016, the company has a controlling stake in Fertilizantes Tocantins and the Russian producer has reached an agreement in June 2020 to acquire the remaining shares in the Brazilian company. According to the company, its market share is of around 8pc. But Eurochem is not the only foreigner in the Brazilian market. Another Russian, Acron agreed in early February 2022 to acquire Brazilian state-controlled oil company Petrobras’ urea and ammonia unit in Tres Lagoas, in Mato Grosso do Sul state. This possible deal is kicking-off, as the signing of the contract is subject to Petrobras governance procedures and government approvals. Russian producer Uralkali also agreed to acquire a 50pc stake in blender Fertgrow in December 2021. Fertgrow delivers fertilizers to customers in Maranhao, Piaui, Tocantins, Para and Mato Grosso states. Brazilian antitrust authority Cade still is expected to evaluate the deal. If everything happens as planned, the company intends to double its 18pc potash market share in its marketing area by 2025. CMOC, previously denominated Copebrás, is another company controlled by a foreigner enterprise. The Chinese group CMOC controls the Brazilian operations since 2016. CMOC operates in Goias and Sao Paulo states producing phosphates for the domestic market.

CD: Interesting, when it comes to exploration, are international producers also involved in the Brazilian market?

RC: Absolutely, Camila. Potassio do Brasil, controlled by the Canadian Forbes & Manhattan, requested an operation license to explore potash in Itapiranga, in Amazonas state, in June 2021. The company estimates the project would have an annual producing capacity of 2mn t of potash. Potassio do Brasil's Autazes project, also in Amazonas state, is under license process and it is expected to produce 2.4mn t/yr of potash. There is no information on the deadlines for the beginning of operations. And here comes Eurochem once again: Brazilian authorities approved in September 2021 Eurochem’s purchase of Norwegian producer Yara’s Serra do Salitre phosphates project in southeastern Brazil's Minas Gerais for $410mn. The project is scheduled to bring on stream a 1mn t/yr phosphates plant, producing MAP, NP, as well as SSP and TSP, in 2023.

CD: Brazil is on its way to having more fertilizer blenders and distributors with a foreign controlling share, at a time when the Brazilian government studies to expand the national fertilizer production. What can it possibly mean, Renata?

RC: Sources from the Brazilian government believe the increase in mergers and acquisitions is strictly linked to historically high fertilizer prices in the spot market and the fact that Brazil is a key consumer market. The rise is also driven by the Brazilian government signaling that the country intends to reduce legal bureaucracy to develop national fertilizer production. Let’s remember, as you mentioned, that Brazilian government is considering increasing national inputs production. In March 2021, Brazilian Agriculture Minister Tereza Cristina launched discussions to develop the country's National Fertilizer Plan, aiming to reduce Brazil’s dependence on imported fertilizers.

CD: But I imagine Brazil is still very far from producing the great majority of fertilizer consumed. Is Brazilian demand set to remain strong for fertilizers?

RC: For sure, Camila, demand is set to remain strong, as the country continues to play a leading role in agriculture and, yes, local production of fertilizer is far from meeting agriculture demands. Brazil imports around 80pc of fertilizers consumed every year. According to Brazil's national fertilizer industry association Anda, 40.6mn t of fertilizers were delivered in 2020, of which 6.4mn t was from national production. In 2021, the latest data shows that 38.3mn t were delivered until October, with around 5.5mn t from domestic production.

CD: Thanks a lot, Renata.

This and other episodes of our podcast are available on the Argus website at www.argusmedia.com. 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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