Mr Esa Hrml

1

Future trends of the European Fertilizer
market

• Mr Esa Härmälä
• Director General, European Fertilizer
  Manufacturers Association (EFMA)
• V International Conference
• CIS Fertilizers Market 2008
• Alushta, Ukraine 27-28 November

2
Content

• Overview of the Season 07/08
• Fertilizer Consumption over the Past Season
• European issues and policies
• Climate Change - ETS
• Industry Developments
• Ten Year Fertilizer Consumption Forecast for the
  EU
• Natural Gas Developments
• Anti-dumping Activities

3
Overview of the Season 07/08

• In 2007 The harvest was good, but limited by
  adverse weather conditions.
• Sudden acceleration of the production of
  bio-fuels.
• In 2008 High global prices and tension on food
  supply boosted the EU agricultural production
• Good start of season with favourable winter and
  spring conditions.
• Record high prices for arable production,
  especially cereals.
• Prices of energy and fertilizers also strongly
  increasing
• Unlike in 2007, the increase in production of
  bio-fuels is decelerating
• Rape seed area stabilizing ( 1.1).
• Sugar beet area dropping substantially.
• Significant increase of the cereal area dedicated
  to bio-energy.
• gtgt Consequence Regional fertilizer consumption
• Increased strongly by 4.5 in 2007/2008

4
Growth of Fertilizer Consumption in 07/08
gtgt Consumption of Nitrogen shows strongest growth
5
European Issues and Policies

• Common Agricultural Policy (CAP)
• Several positive factors for higher and more
  intensive production
• Abandon of set aside.
• Progressive increase of milk quotas, planned to
  be abolished.
• Decoupling of aid extended to all market
  segments.
• Production of bio-energy, a new ambition
• 20 of renewable in 2020, a new mandatory target.
• However, intense discussion on bio-fuels
• 10 bio-fuels in 2020 likely not accepted.
• Priority put on second generation bio-fuels for
  later development.
• Development competing severely with food
  production.
• Climate Change, the overwhelming issue
• 20 reduction of GHG emission, target for 2020.
• 10 GHG savings in 2020 required for agriculture.
• 35 GHG savings, main  Sustainability criteria 
  for production of bio-fuels.

6
Climate Change

• Climate Change the main issue
• Emissions Trading Scheme (ETS) after 2012
• We are facing the challenge to obtain free
  emission rights for our industry.
• Full auctioning and a CO2 price of 50 /t will
  cost the EU fertilizer industry 3.9 billion euros
  per year.
• Preparing for a low carbon economy
• The EUs long term target.
• Develop good agricultural practices with farmers

7
Climate Change (cont)

• New EU policy Legislative context
• The EU Renewable Energy - Climate Change
  package
• 20 - 20 - 20 10
• EU mandatory targets for 2020
• 20 increase in energy efficiency.
• 20 reduction in GHG emissions (compared to
  1990).
• ETS (emission trading) 21 saving in 2020,
  compared to 2005.
• Non ETS activities 10 saving in 2020, compared
  to 2005.
• 20 share of renewable in all EU energy
  consumption.
• 10 biofuel components in vehicle fuels
• gtgt Reported volumes conditioned to respect of
  sustainability criteria

8
Industry Developments

• No new mergers in Europe
• Restructuring initiatives limited to Poland
• Some smaller acquisitions in wholesale/retail
  chain
• Market very strong first half of 2008
• Credit crises influencing Global and European
  Fertilizer Industry
• Unprecedented fall of Urea and Ammonia prices
• Nitrate markets see limited impact

9
Ten Year Fertilizer Consumption Forecast for the
European Union (EU-15)
gtgt Stable N and declining P K consumption in
EU-15
10
Ten Year Fertilizer Consumption Forecast for the
European Union (EU-12)
gtgt Strong increase of all nutrients in all areas
in EU-12
11
Ten Year Fertilizer Consumption Forecast for the
European Union
12
Natural Gas Developments
gtgtEuropean gas prices continue to be high
13
Natural Gas Developments

• EU Energy Gas Package proposals released
  September 2007 finish very likely by April 2009
• Further de-monopolisation / unbundling
• Stronger national regulators new European Agency
• Push on regional inter-connectivity and cross
  border trade
• Push on gas supply diversification, e.g. Nabucco
  pipeline and LNG
• Russia reform pressures slowing with new
  government
• Gas price reforms under new review with 2011 or
  2015 to be set as end to state-fixed gas
  pricing
• Gazprom still forced by state to sell gas below
  operating costs not a sustainable position, i.e.
  no profit contribution from the majority domestic
  business
• Trend will be up-ward with underlying intention
  remaining domestic prices based on European
  netback basis.
• Ukraine - Russia gas deal
• Natural Gas price increased and expectation for
  2009 is Ukrain price to be USD 8 /mmBTU or over

14
Anti-Dumping Activities

• 5 EFMA sunset (five year) review cases concluded
  by July 08 with various outcomes
• UAN measures all continued, December 06
• Urea measures all terminated, March 08
• AN measures continued on Ukraine (Euro 33/ton)
  and Russia (Euro 47/ton)
• Exporter reviews result in price / quota
  undertakings, July 08
• Russia Eurochem and Acron on AN
• Russia Eurochem on UAN
• Ukraine Cherkassy on AN
• gtgt Significant market access for Russian/Ukraine
  importers

15

• THANK YOU
• FOR YOUR ATTENTION