Yara Fertilizer

Industry Handbook

October 2018
List of contents

• Fertilizer industry overview

• What is fertilizer? p. 2
• Why mineral fertilizer? p. 5
• Environmental impact of fertilizer p. 9
• The fertilizer industry p.16

• Fertilizer industry dynamics p. 25

• Ammonia p. 27
• Urea p. 32
• Nitrates p. 37
• NPKs p. 44

• Industry value drivers p. 50

• Drivers of demand p. 53
• Drivers of supply p. 65
• Price relations p. 73
• Production economics p. 81

• Industrial applications p. 87

1
What is fertilizer?

2
Fertilizers are plant nutrients, required for crops to grow

• Crops need energy (light) CO2, water and minerals to

grow

• The carbon in crops originates from CO2 absorbed

through the leaves

• Crops absorb water and plant nutrients from the soil

• Plant nutrients are building blocks of crop material.

Without nutrients the crops can not grow

• Mineral fertilizers provide plant nutrients for crops

• Three main nutrients: Nitrogen, Phosphorus and

Potassium are primary nutrients

3
Principle of crop nutrition: crop growth is limited by the most
deficient nutrient
Soil conditions
• Law of the Minimum” (Liebig, 1843): “Crop yields
& other growth
are proportional to the amount of the most
factors

YIELD
limiting nutrient.”

• Plant nutrients have specific

and essential functions in crop metabolisms

Calcium
Potassium
Phosphorus
• They cannot replace each other, and lack of any
one nutrient limits crop growth

• It is therefore essential to focus on a balanced

nutrition of all plant nutrients

4
Why mineral fertilizer?

5
Mineral fertilizers replace nutrients removed with the harvest

Supply of crop residues and

organic fertilizer

NPK

• Export of nutrients with the

Organic N K harvest
material, P
humus S Mg • Growing demand for food
Mineralisation Ca
& feed
Crop residues are decomposed to minerals

Mineral fertilizers are necessary to replace those nutrients that have been removed from the field

6
Mineral fertilizer characteristics compared to organic fertilizer

Characteristics Mineral fertilizer Organic fertilizer

Nutrient Nitrogen from the air,

Crop residues and animal manures
source Phosphate and Potassium from deposits / mines

Nutrient High nutrient concentration Low nutrient concentration

concentration Low logistical cost Large volumes to transport and store

Nutrient Variable, organic material needs to be

Immediately available for the crop
availability decomposed to release nutrients

Often inconsistent
Quality Traceable and consistent
Dependent on source

7
 Nitrogen – the most important nutrient
Nutrient characteristics

Primary benefit Application Industry structure

Potassium (K) 19%  Improve  Application  Fewer suppliers, production

crop quality can be varied discipline

Phosphorus (P) 24%

 Increase crop size  Annual application  Fragmented Industry, under

 Most important and critical consolidation
Nitrogen (N) commonly lacking  More dynamic prices, but
57% stable volume
nutrient

Total 186 million

tons nutrients

Source: IFA 2016/2017 season (June 2017 estimates)

8
Environmental impact of fertilizer

9
 Fertilizer reduces the carbon footprint of farming
Fertilizer - an efficient solar energy catalyst
 Production is a marginal part of the carbon footprint; efficient application is more important
 Huge positive effects of fertilizer use, since higher yields enable lower land area use

Production Application
 Yara’s production is more energy-efficient than competitor average  Higher efficiency with nitrates
 Precision farming tools

3.6 kg 0.1 kg 5.6 kg 75 kg 75 kg

CO2 eqv CO2 CO2 eqv CO2 CO2

PRODUCTION TRANSPORTATION FARMING HARVEST CONSUMPTION CAPTURE

© Yara 2010

10
The right nitrogen fertilizer rate is key to avoid nitrate leaching

Grain yield (t/ha) Nitrate in soil after harvest (kg N/ha)

• Leaching of nitrate into groundwater 10 100
affects water quality and contributes to
eutrophication 9
80

• Oversupply of organic and mineral 8

60
nitrogen fertilizer represents the main
driver for nitrate leaching 7
40
• Nitrogen fertilizer application according 6
to crop demand does not increase 20
nitrate leaching 5

4 0
none medium right too much

Supply of N fertilizer to the crop

11
Choosing the right nitrogen fertilizer to avoid ammonia
volatilization losses

• Volatilization of ammonia gas contributes Ammonia volatilization in % NH3-N per unit N applied
to pollution, affects air quality and induces
soil acidification
19.9
• The use of organic or urea-based nitrogen
fertilizer represents the main driver for
ammonia losses
10.8
• Nitrate-based N fertilizer or immediate
incorporation of urea into the soil avoids
volatilization losses
3
1.8
0.7

CN CAN AN UAN Urea

N fertilizer

Reference: EMEP/EEA emission inventory guidebook 2013

12
Good crop nutrition enables increased water efficiency:
“more crop per drop”

• Water is a key input for crop growth Water requirement (liter per kg of wheat grain)

• About 70% of global water consumption is

for agriculture
600

• Sub-optimal crop nutrition tends to drive 510

450
over-consumption of water
380

• Optimized crop nutrition improves water use

efficiency

No fertilizer low medium right

Supply of fertilizer to the crop

Source: Yara research

13
Carbon footprint of urea production differs by region

kg CO2 equivalents per kg urea nitrogen

6.53

3.99 4.14
3.78
3.50 3.61

EU 27 Russia US Africa China China

(coal-based) (gas-based)
Source: Fertilizers Europe (2016) for production in 2014

14
Carbon footprint of ammonium nitrate production by region

kg CO2 equivalents per kg AN nitrogen

11.06

8.61

7.23
6.82

3.42

EU 27 Russia US China China

(coal-based) (gas-based)
Source: Fertilizers Europe (2016) for production of granulated AN in 2014

15
The fertilizer industry

16
 Consumption trend per nutrient

Million tonnes nutrient

120 N 1.1% growth pa.*

100

80

60
P 1.6% growth pa.*

40

20 K 2.2% growth pa.*

0
1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015 2018F 2021F

Source: IFA, June 2017 * CAGR avg. 2014-2016 to 2021

17
 Key global fertilizer products

Nitrogen N

Other
Ammonia 10%
4% Urea
DAP/MAP 50%
7%
Potash K2O Phosphate P2O5
NPK
Other 15% Other
4% 11%
TSP
AN/CAN 6%
9% UAN
SSP
5% DAP/MAP
9%
NPK MOP/SOP 107 million tonnes* 47%
37% 59%
NPK
27%

34 million tonnes 45 million tonnes

Source: IFA 2016 (nutrient totals) and 2015 (product split) * Does not include industrial nitrogen applications

18
 Nutrient application by crop
By tonnes nutrient

N+P+K Nitrogen

Other
Other Wheat Wheat
13%
14% 15% 18%
Fruit & veg
Rice 14%
Fruit & veg Rice
14% 15%
16% Sugar crops
4%
Cotton
Sugar crops Maize 4%
Oilseeds 16% Roots/Tubers Maize
4%
Cotton 13% 2% 18%
4% Oilseeds
Other cereal 8% Other cereal
4% 5%

Source: IFA (2014/15)

19
Fertilizer consumption by region – 5 key markets
Million tons nutrient consumption
Russia
West/Central
1.7
Europe
United States
11.5
12.3
0.6
0.3
4.6
4.3 4.7 2.7 China
N P K 27.3

N P K
N P K 15.0
India 8.7
Brazil
17.4
5.2
4.4
3.5 N P K
7.0

2.4

N P K N P K
Source: IFA 2015

20
 Nitrogen consumption in key regions

Million tonnes nitrogen

70
Asia: 0.8% *
60

50

40

30

20 Europe: 0.9% *

North America: 0.4%*

10
Latin America: 4.4%*
0
2001 2005 2009 2013 2017F 2021F

Source: IFA, June 2017 * CAGR avg. 2014-2016 to 2021

21
The N industry is fragmented, while the P and K industries are
more concentrated
1
2016 figures , million tonnes nutrient Yara CF Agrium
TOAZ PCS
Other non- Orascom • Despite a consolidation trend, the industry is
Chinese Eurochem
still higher fragmented
Nitrogen1 Uralchem
Koch
(N) • Top 3 producers account for only ~15% of
Chinese Sabic world capacity
players

OCP Mosaic
(incl. • More concentrated than N-industry
Other Ma'aden)
Phosphate India
• Top 3 producers account for ~24% of capacity
PhosAgro
(P) China GCT
Ma'aden PotashCorp
(excl. Vale
Mosaic) JPMC

Other PotashCorp • Highly concentrated industry

Potash • Top 3 producers account for ~49% of capacity

China
(K) Belaruskaly

K+S Kali
1) Nitrogen: 2013 figures Mosaic Uralkali
Source: IFA 22
Nitrogen fertilizer application by region and product

West /central Europe (11.5 mt) China (27.3 mt)

USA (12.3 mt) Other Other
DAP/MAP
DAP/MAP 11%
Other 6% 1%
3%
11% Urea
DAP/MAP
NPK 23% Urea
6% Urea
23% 10% 46%
NPK
6% UAN NPK
13% Nitrates 38%
UAN Ammonia 40%
26% 27 % ABC
8%
Nitrates
2% India (17.4 mt)
Other
Brazil (3.5 mt)
DAP/MAP 1 %
AS 15%
NPK
12%
3%
DAP/MAP
18% Urea
NPK Urea 81%
1% Nitrates 54%
16%

Source: IFA 2015

23
Nitrogen fertilizer application by region and crop
Russia
EU-28
USA
Other
Oilseeds 19%
Other Wheat Wheat
29% 29% 9% 41%
Other
34% Maize Fruits & Maize
47% vegtables 11% Other China
Maize
Other 7% Oilseeds Other 13% Sugar crops cereals
cereals cereals 6% 14%
11% 15% Other
4% Fruits & Cotton 3% 14%
vegtables Wheat Oilseeds Fruits &
2% 13% India vegetables
4%
Brazil 32%
Wheat
Wheat 14%
Other
5% Wheat Maize Rice
Maize 25%
23% 19% 16%
27% Fruits &
Other vegtables
34% Sugar 4%
Rice
crops Cotton 29%
Rice 21% 10%
Fruits &
5% vegetables Cotton Oilseeds
Source: IFA 2014/15 5% 4% 9%
24
 Yara – the leading nitrogen fertilizer company
2017 production capacity, excl. Chinese producers1 (mill. tonnes)

Global no 2 in ammonia Global no 1 in nitrates Global no 1 in NPK

9.9
9.12 7.7

6.2
7.2
5.6
4.2
3.3
3.7 3.0 2.9 2.7 2.7
2.4 2.3 2.2 2.2

1) Incl. companies’ shares of JVs * Incl. TAN and CN * Compound NPK, excl. blends
2) As of Jan 2018
Source: Yara estimates, company info 25
 Yara – the European cost leader
Production cost index: 100 = European industry average excl. Yara

Ammonia cost position Nitrate cost position

Index Index
110 110

100 100

90 90

80 80

70 70

60 60

50 50

Average cost Yara’s European plants

Source: Fertilizer Europe European average (excl. Yara)

26
Ammonia

27
Global ammonia production

Million Total production Million 10 largest producers (2016)

tonnes tonnes
200 56.1

180

160

140

120
16.2
100 14.1 12.4

80 5.8 5.4 5.1 4.4 4.1 3.6

60

2006-2016 trend growth rate = 1.9%/year

Source: IFA

28
 Most of global ammonia production is upgraded to urea and
other finished fertilizer

Million Ammonia trade - seaborne Million Ammonia use (2016)

tonnes tonnes
25
World trade 139
20

15

10
Yara trade 37
5

0
Fertilizer Industrial use

Urea Nitrates DAP/MAP NPK Other N

Source: Yara, IFA Source: Fertecon

29
 Global ammonia trade

Million 10 largest exporters (2016) Million 10 largest importers (2016)

tonnes tonnes

4.8
4.6

3.7

2.7

1.4 1.3 1.3 1.1 1.1 1.0

0.8 0.9
0.7 0.7 0.6 0.6
0.4 0.4 0.5 0.5

Source: IFA

30
 Main ammonia flows 2016
Million tonnes

1.8
1.3
0.8 0.5
1.2 0.5
2.7
3.3 0.4
0.2
0.4
1.5
1.0

Source: IFA 2016, 85% of trade shown

31
Urea

32
Global urea production

Million Total production Million 10 largest producers (2016)

tonnes tonnes
200

180 61.9

160

140

120
24.6
100

80 8.1 7.5 6.5 6.0 5.7 4.8 4.8 4.6

60

2006-2016 trend growth rate = 2.8% p.a.

Source: IFA
33
 Global urea trade

10 largest exporters (2016) 10 largest importers (2016)

Million Million
tonnes tonnes
8.9 7.2 7.2

6.0 5.0
5.4
4.2
3.4
2.9 2.8 2.4 2.3 2.3
2.1 1.8
1.8
1.4 1.1 1.1 1.0

Source: IFA

34
 Main urea flows 2016
Million tonnes

3.2
1.2
2.7 0.7
1.2 2.8
1.5
4.6 9.8 3.3
0.6 1.7
0.4
2.5
1.6 1.8

3.9

Source: IFA 2016, 86% of total trade shown

35
Global pricing at times below the Chinese floor, due to limited
need for Chinese urea in the global market
USD/mt
Urea price China (inland proxy price)
600
Urea fob Black Sea
500

400

300

200

100

Source: China Fertilizer Market Week, International publications

36
Nitrates

37
 Nitrate production

Million 10 largest producers (2016) Million 10 largest producers by company (2016)

tonnes tonnes
nitrogen(AN/ AN/CAN/CN
CAN) Exports 7.4

Domestic
consumption
1.5
4.5
0.1
3.2
0.1 2.7
2.3 2.2
2.5 0.1 1.9 1.8 1.8
2.4 1.6
1.8 0.2
1.2 0.7 0.0 0.0
0.7 0.6 0.5 0.5 0.4
0.2 0.1

Source: IFA, AN/CAN including nitrate part of UAN, as are

industrial grades Source: Yara estimates, company info
38
Nitrates are products with a nitrate content of 50 % or more

N fertilizer N content Nitrate (% of total N) Other nutrients

CAN (calcium ammonium nitrate) 27% 50% 4% MgO

AN (ammonium nitrate) 33.5% 50%

NPK various about 50% P&K

CN (calcium nitrate) 15.5% 93% 19% Ca

Urea 46% 0%

UAN (liquid urea ammonium nitrate) 28% 25%

ASN (ammonium sulfate nitrate) 26% 25% 13% S

AS (ammonium sulfate) 21% 0% 24% S

39
Nitrates vs. urea
Nitrate is the most important fertilizer in Europe

Urea (CON2H4) Ammonium (NH4+) Nitrate (NO3-)

Urea-N needs to be converted into Ammonium-N is fixed onto clay minerals in Nitrate-N is always dissolved in the soil
ammonium-N before it is plant the soil and therefore immobile. The plant water and is transported passively together
available. roots have to grow actively towards the with the water into the plant root. Thus,
nutrient. nitrate is rapidly effective.

40
 Urea and UAN underperformance compared with ammonium
nitrate
Trial results for arable crops (cereals, UK)

Extra N required for same yield Protein content at identical N rate Yield at identical N rate
% % %
118
114 8.6
12.6

12.3 8.3
100 8.3
12.1

AN UAN Urea AN UAN Urea AN UAN Urea

To maintain the same yield, significantly Protein content was significantly lower on
more nitrogen was needed from urea and fields fertilized with urea or UAN than with Yield was also significantly lower with urea
UAN than from ammonium nitrate ammonium nitrate and UAN than with ammonium nitrate

Source: DEFRA

41
Yield advantage of nitrates in tropical climate
Brazil, main season corn

Grain yield (t/ha)

• Research shows that the benefits of nitrates
12.0
are even more pronounced in the tropics than
YaraBela Nitrates
in colder climates
Urea
10.0
• YaraBela nitrate provides direct and efficient
uptake of nitrate-N 8.0

• Consistently lower NH3 volatilization losses

6.0
Optimum N rate

• Reduced acidification in the root zone,

4.0
supporting root growth and nutrient uptake

2.0
0 50 100 150 200 250 300
Fertilizer N rate (kg/ha)

Source: Fundation Bahia (2013)

42
Nitrates’ agronomic advantage has higher value for cash crops than
for commodity crops

Crop value with nitrates Increase in crop production value using

nitrates instead of urea
€/ha 3,192 Index
1,016

1,553

100

Wheat/UK Oranges/Brazil Wheat/UK Oranges/Brazil

(160 kg N/ha) (180 kg N/ha)

43
NPKs

44
Compound NPKs contain all nutrients in one particle
Compound NPKs NPK bulk blends
A mix of products with different
All nutrients in each and every particle spreading properties

Risk of segregation and uneven

Even spreading of all nutrients
spreading

45
Bulk blend segregation during loading and unloading
Urea + DAP + MOP Compound NPK
15-15-15 15-15-15

Compound NPK
20 - 15 - 10 15 + 15 + 15
Compound NPK
13 - 17 - 15 15 + 15 + 15
Compound NPK
12 - 13 - 20 15 + 15 + 15
N – P2O5 – K2O analysis N – P2O5 – K2O analysis
in a pile of poor quality blend in a pile of compound NPK 15-15-15

Segregation due to differences in specific weight and granule size

46
Better spreading with compound NPKs

Spreading width

 Spreading width of light particles

like Urea is less than those of
Urea heavier particles like DAP
DAP and MOP
MOP
Poor spreading patterns
cause striped fields
and significant yield losses

Compound
NPK

47
 Compound NPKs give excellent spatial distribution of nutrients
and higher crop yields as a result
Average yield of potato (n = 9 years)
Potato yield, tonne per ha
NPK
Compound NPKs NPK 41
16+16+16
39
more particles and
better distribution
NPK NPK

N P
Bulk blend
Urea-DAP-MOP
K
fewer particles,
longer distance to roots

Bulk blend NPK Compound NPK

Source: Yara field trials

48
 Compound NPK capacities

Million 10 largest countries by capacity Million 10 largest producers by company (ex. China)
tonnes tonnes

47.1
5.3

3.3
2.7 2.7
1.9 1.8 1.8
2.6 2.6 2.5 2.5 2.2 1.5 1.5
6.8 6.2 1.1
4.2 3.7

Source: IFA 2013/2014 Source: Yara estimates, company info

49
Industry value drivers

50
Key value drivers

Ammonia fob Black Sea (USD/t) Urea prilled fob Black Sea (USD/t) CAN cif Germany (USD/t)
525 545 466
516
477 496 499
379 337
357
387 423 407 316 329
341 318 240 261
289 268
267 249 272 219
240 236 195
198
221

08 09 10 11 12 13 14 15 16 17 08 09 10 11 12 13 14 15 16 17 08 09 10 11 12 13 14 15 16 17

Henry Hub (USD/MMBtu) Oil Brent blend spot (USD/bbl) NOK/USD exchange rate
8.9
104 105 104 96 8.1 8.4 8.3
97
80 6.0
6.3 5.9 6.3
62 5.6 5.6 5.7
4.4 4.1 4.7 54
4.0 51
3.7 43
2.8 2.6 3.0
2.5

08 09 10 11 12 13 14 15 16 17 08 09 10 11 12 13 14 15 16 17 08 09 10 11 12 13 14 15 16 17

Source: Fertilizer market publications, World Bank, Norges Bank Average 2008 – 2017

51
Nitrogen fertilizer value drivers

Drivers Effect on

Chinese coal prices  Supply-driven price for urea

Grain inventories/prices  Urea demand
Revenue  Urea supply
New urea capacity vs. closures
drivers
Global urea demand vs. supply  Urea price (above floor)
Urea price  Most other nitrogen fertilizer prices

Cash crop prices  Value-added fertilizer premiums

Oil product prices and LNG capacity  Gas cost in Europe

Cost expansion
drivers Manning and maintenance  Fixed cost
Productivity and economies of scale  Unit cost

52
Drivers of demand

53
Drivers of fertilizer consumption growth

• Food demand drives fertilizer consumption

• Population growth of about 80 million each year
• Economic growth change diets
• Higher meat consumption in developing countries
• More protein-rich diets
• More fruit and vegetables
• Reduce hunger
• Biofuels

• Industrial consumption
• Economic growth
• Environmental limits (e.g. reduction of NOx emissions)

54
 Key crops by producing by region

Maize-global production 1,031 mt Wheat-global production 745 mt

Other EU-28
Other 19%
25%
United States 33%
Ukraine 37% China
3% 17%
EU-28
6% Brazil China US Russia India
8% 21% 9% 10% 12%

Rice-global production 484 mt Soybeans-global production 336 mt

India
3% Other
China 11%
Other China 4%
USA
27% 30% 35 %
Argentina
17%
Vietnam
6%
India
Bangladesh Indonesia 22% Brazil
7% 30%
8%
Source: USDA, 2016/17 season
55
 Growing meat consumption increases demand for cereals
China example

Direct cereal consumption, Mio.

Mill. tons
tonnes Meat consumption, Mill. tonnes
260 35
+4% p.a.

-2%
p.a.
200
0 0
1990 2005 1990 2005

Total cereal demand, Mill. Mio. tons

tonnes
• The example of China illustrates that changing 370
diets towards higher meat consumption increases
overall demand for cereals +5% from
1990 to 2005
• Higher meat consumption requires more feed grain
350
0
1990 2005
Source: McKinsey

56
 Steady growth in grain consumption, while production growth is
more volatile due to weather variations
Grain consumption and production Days of consumption in stocks
Million
tonnes Days
2,750 100
95
2,650
90
2,550
85
2,450
80
2,350
75
2,250
70
2,150
65
2,050 60
1,950 55
09 10 11 12 13 14 15 16 17 18E 19F 09 10 11 12 13 14 15 16 17 18E 19F

Consumption Production

Source: USDA October 2018

57
 China drives recent years’ increases in global grain stocks

Grain stocks – China versus the rest Days of consumption in stocks

Mill. tonnes Days
400 250

350
200
300

250 150
200

150 100

100
50
50

0 0
09 10 11 12 13 14 15 16 17 18E 19F 09 10 11 12 13 14 15 16 17 18E 19F

China Rest of world

Source: USDA October 2018

58
 Profitability of investment in mineral fertilizers

Yield response (monetary value) to N fertilizer rate

Income
USD/ha Yield, tonne/ha • The investment in nitrogen fertilizer is highly
3,000 10.0
profitable for growers
9.0
2,500 • Fertilizer investment: 175 USD/ha
8.0

2,000
7.0 • Net return: 1,214 USD/ha
6.0
1,500 5.0
• Net return ~ 7 x investment
4.0
1,000
3.0
2.0
500
1.0
0 0.0
0 50 100 150 200 250 300
Fertilizer application, kg N/ha

Source: Winter wheat yield data: Long term trial, Broadbalk, Rothamsted (since 1856).

59
Breakdown of grain production costs
Example: 2017F average US corn production costs

Fertilizers as proportion of US corn

Seed production costs
16% 30%
Other
8%
25%

Fertilizer
20%
18%
Land
25% 15%

Chemicals
4% 10%
Labour
Power & Machinery 5% 5%
24%
0%
2002 2004 2006 2008 2010 2012 2014 2016 2018F

Source: USDA (Cost-of-production forecasts November 2017)

60
 Large variations in yields across regions

Maize yields Wheat yields

Tonnes/Ha Tonnes/Ha
11.0 5.4 5.3

7.4 3.5
5.9 3.1
2.7
4.3 3.7

US Argentina China Brazil Mexico China France US India Russia

Tonnes/Ha Rice yields Tonnes/Ha Soybean yields
6.9 3.5
5.6 3.0 2.9
5.4
4.6
3.7 1.8
1.2

China Viet Nam Indonesia Bangladesh India US Argentina Brazil China India

Source: FAOSTAT 2016

61
 Seasonality in fertilizer consumption
Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun
Corn
USA
China
Europe
Brazil, first crop
Brazil, second crop

Wheat
China (winter wheat)
China (spring wheat)
India (Rabi)
USA (winter wheat)
USA (spring wheat)
Europe (winter wheat)
FSU (winter wheat)

Rice
China (single crop)
China (early double crop)
China.(late double crop)
India (Kharif)
India (Rabi)

Planting/seeding
Harvest

Source: USDA

62
 N-fertilizer consumption from biofuels production
Million tonnes nitrogen

2.2

0.6

0.3 0.4

US - maize for ethanol Europe - rapeseed for biodiesel Brazil - sugarcane for ethanol Others

Source: Yara estimates 2017

63
Organic farming represents a marginal share of total cultivated
land
60 1.2%

• The principles of crop nutrition are also valid for

organic farms 50 1.0%

• Organic farms use manure and crop residues to 40 0.8%

deliver minerals to their crops

30 0.6%
• Organic farming is a niche market, mainly for
consumers in the developed world
20 0.4%

10 0.2%

- 0.0%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Ha, millions Share of cultivated land

Source: Organic-world.net
64
Drivers of supply

65
Nitrogen value chain
Raw material Intermediate Finished Industrial
products products products

H, Ar, CO etc
Industrial gases
C02
Ammonia
Ammonia
Environmental
Urea products
Natural gas

Nitric acid
Industrial nitrogen
Nitric acid Nitrates chemicals

Calcium
Nitrate

66
 Fertilizer production routes

Finished fertilizer products

Natural gas Ammonia
(coal, oil) Ammonia
Ammonia plant
Air CO2 Urea
Ammonia

Air Nitric acid plant

Ammonium Nitrate (AN)
Nitric acid Calcium Ammonium Nitrate (CAN)

Rock (P) Triple Super Phosphate (TSP)

H3PO4
Phosphoric acid plant
Single Super Phosphate (SSP)
Sulphur (S) Sulphuric acid plant
DAP / MAP

67
 NPK production routes

Natural gas Ammonia plant

(coal, oil) Ammonia
Air

Air Nitric acid plant

Nitric acid
Nitrophosphate based NPK
Nitrophosphate plant + Calcium Nitrate (CN) 1
Phosphate
rock1 H3PO4 Phosphoric acid based NPK
Phosphoric acid plant 2
+ gypsum
Urea
AN/CAN Dry blend
Sulphur Sulphuric acid plant 3
MAP/DAP
SSP/TSP
MOP/SOP Steam granulated NPK
MOP/SOP
(also compound) 4
1. Igneous and calcined sedimentary

68
 Nitrogen technology evolution

450
400 Birkeland-Eyde electric arc method

350
300
GJ/tN 250 Cyanamid method
200
150
Haber-Bosch synthesis Steam reforming natural gas
100
50 Theoretical minimum
0
1910 1915 1930 1950 1960 1975 2000

69
Projected nitrogen capacity additions outside China

Global urea capacity additions excl. China (mill. tonnes)

India Iran USA Others

Russia Algeria Nigeria
6.7

4.7
10-year historical trend
4.1 consumption growth
3.4 3.2

2.2 2.2 2.3

1.1 1.2

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Source: CRU September 2018

70
30% of announced nitrogen projects realized on time
Likely and probable ammonia projects in pipeline 2002-2008; Million tons

52

17
30 35

22 22 -70%

11
2

Projects in Added to Total projects Due after 08 Due within 08 Cancelled Delayed Realized
02 pipeline pipeline in pipeline
from 02-08 between 02-08
Note: Chinese projects are excluded from pipeline
Source: 2002, 2004, 2006, 2007, 2008 Fertecon Ammonia Outlook Reports

71
5 year typical construction time for nitrogen fertilizer projects*

4–6 years

Business
development Concept
Feasibility Prepare
selection Construction Operation
phase for execution
Gas phase
agreement

12-24 months 30-36 months

depending on complexity

6-12 months
- check cost assumptions by approaching market
- bidding for contracts and/or equipment

* Ammonia and urea plant example

72
Price relations

73
Upgrading margins from ammonia to urea
USD/tonne
900

800

700

600

500

400

300

200

100

0
Jan 02 Jan 04 Jan 06 Jan 08 Jan 10 Jan 12 Jan 14 Jan 16 Jan 18

Urea fob Black Sea 0.6 * Ammonia fob Black sea + 15

Source: Average of international publications

74
Grain prices important for fertilizer demand
Corn USD/t Urea USD/t
350 700

300 600

250 500

200 400

150 300

100 200

50 100

0 0
1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017

Corn Urea fob Middle East

Source: World Bank, Fertilizer publications

75
The urea market has been supply-driven since 2014

USD/t
600

500 Urea price, fob Yuzhny

400

300

200

100

0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Europe oil index Ukraine (Fertecon) US China

Source: Fertecon (Ukraine), Yara estimates

76
 Nitrate premium is mainly a function of crop prices and
marketing
Wheat price, USD/t
CAN price, USD/t
450 400

400 350
350
300
300
250
250
200
200
150
150
100
100

50 50

0 0
05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15 15/16 16/17 17/18

Adjusted urea* Nitrate premium, USD/t Wheat price

Source: World Bank, Fertilizer publications * Urea fob Black sea adjusted for import costs into Europe and nitrogen content similar to CAN
77
 Grain/oilseed prices – yearly averages

USD/bu Wheat (HRW US Gulf) USD/t Rice (Thailand)

10 800
8
600
6
400
4
2 200

0 0
08 09 10 11 12 13 14 15 16 17 08 09 10 11 12 13 14 15 16 17

USD/bu Corn (US Gulf) USD/bu Soybeans (cif Rotterdam)

8 20

6 15

4 10

2 5

0 0
08 09 10 11 12 13 14 15 16 17 08 09 10 11 12 13 14 15 16 17
Source: World Bank, December 2017 Average prices 2008 - 2017

78
Cash crop prices – yearly averages

USD/kg Cocoa USD/kg Coffee (arabica)

4 8

3 6

2 4

1 2

0 0
08 09 10 11 12 13 14 15 16 17 08 09 10 11 12 13 14 15 16 17

USD/kg Cotton USD/kg Orange

4 2.0

3 1.5

2 1.0

1 0.5

0 0.0
08 09 10 11 12 13 14 15 16 17 08 09 10 11 12 13 14 15 16 17
Source: World Bank, December 2017 Average prices 2008 - 2017

79
 10-year fertilizer prices – monthly averages

USD/t Ammonia fob Black Sea USD/t CAN cif Germany

1,000 500

800 400

600 300

400 200

200 100

0 0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

USD/t Urea prilled fob Black Sea/Urea granular fob Egypt USD/t DAP fob US Gulf/MOP granular fob Vancouver
800 1,200
1,000
600
800
400 600
400
200
200
0 0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Source: Average of international publications Average prices 2008 - 2017

80
Production economics

81
 Yara’s operating cash costs are mainly variable

NOK Operating cash cost 2017

Billions
• Temporary plant closures can be carried out
90 with limited stop/start costs
80
70 • Example for ammonia/urea plants:
• Typically half a week to stop and a week to start
60 • Cost of stopping is 2 days energy consumption
50 Variable costs (84%) • Cost of starting is 3 days energy consumption
70.3 - Dry raw materials
40 - Energy
- Freight
30 - 3rd party finished fertilizer
20
10
13.3 Other cash cost (16%)
0

82
Ammonia cash cost build-up – example

Gas price: 4 USD/MMBtu 36 MMBtu natural

gas/tonne ammonia
x Gas consumption: 36 MMBtu/mt NH3
= Gas cost: 144 USD/mt NH3
Ammonia (NH3)
+ Other prod. cost: 29 USD/mt NH3
(82% N)
= Total cash cost 173 USD/mt NH3
Typical natural gas
consumption for ammonia
production

Source: Blue Johnson & Associates.

83
Urea cash cost build-up – example

Ammonia price: 173 USD/mt NH3 36 MMBtu natural

gas/tonne ammonia
x Ammonia use: 0.58 NH3/mt urea

= Ammonia cost 100 USD/mt urea Ammonia (NH3)

(82% N)
+ Process gas cost* 21 USD/mt urea
0.58 mt ammonia per

CO2
+ Other prod. cost**: 25 USD/mt urea
tonne urea
= Total cash cost 146 USD/mt urea

Urea
(46% N)
* Process gas cost is linked to natural gas price
** Including load-out Source: Blue Johnson & Associates.

84
 Theoretical consumption factors

Ammonia
(82% N)
P and K

Urea AN CAN NPK

(46% N) (33.5% N) (27% N) (15-15-15)*

• Price comparisons should always be based on nutrient tons, not product tons

* There are many NPK formulas; 15-15-15 is one example

85
 Main phosphate processing routes
2016 production and exports, million tons product

Rock production: 200

Phosphate rock
Rock exports: 28
Sulphuric (72% BPL*, 33% P2O5 )
acid**

Phosphoric acid Production: 45

(100% P2O5) Export: 4
Ammonia
( 82% N)

SSP DAP MAP TSP

(15-22% P2O5) (18% N, 46% P2O5) (11% N, 52% P2O5) (46% P2O5)
Production***: 25 Production: 34 Production: 29 Production: 6
Export: 2 Export: 16 Export: 10 Export: 3

* P2O5 content of phosphate rock varies. This is an example.

Source: IFA ** 1 ton of phosphoric acid requires 1 ton of sulphur.
***2015 figures
86
Industrial applications

87
Nitrogen has many industrial applications

H2S abatement H S abatement Technical nitric

2
in oil fields in sewage acid Cleaning/
AdBlue ®/heavy-duty vehicles
scrubbing
NITCAL® Concentrated Aqueous Vessels
DIPCAL® nitric acid ammonia
CN Acrylonitrile Stationary sources
Glue NOX
ANFO
abatement Dry ice
Emulsions TAN Nitric NH3
acid
N2O abatement Urea Melamine Applic. LIC
CO2

Combined Industrial gases LIC wholesale

products Formates Nitrogen
Oxygen
Argon
Propane
Ammonia

88
Industrial use accounts for 21% of global nitrogen consumption

~31.5 million tonnes N ~10 million tonnes N as urea

Environmental
and other
6% Environmental
Other
12% 11%

Explosives
19% Melamine
20%

Chemicals
75% Glue
57%

~21% of total nitrogen consumption ~13-14% of total urea consumption

Source: Yara estimates 2017, IFA, Fertecon, CRU, Integer

89
Global demand development of nitrogen chemicals for industrial
applications is strong
CAGR
Million tonnes nitrogen 3%

11.3
10.0 Urea Ammonia
9.5

21.6 23.4
20.5

2015 2017E 2020E

Demand growth for Industrial applications

is estimated to ~3 % annually
Source: Yara estimates, IFA, Fertecon, CRU, Integer
90
 Reagents, technology and services to improve air quality

Nitrogen oxides (NOx) are a major air quality issue causing serious problems mostly in urban centers related to both the
environment and human health. Legislation around the world drives the business growth.

• Air 1™ AdBlue/DEF is a generic name for urea-based solution (32.5% liquid

urea) Air 1 is Yaras brand name for AdBlue that is used with the selective
catalytic reduction system (SCR) to reduce emissions of oxides of nitrogen
from the exhaust of diesel vehicles such as trucks, passenger cars and off-
road vehicles

• NOxcare™ As a world leader in reagents like urea and ammonia in

combination with our experience in abatement systems like SNCR and SCR
technology Yara offers its clients one of the most comprehensive and effective
solutions to reduce NOx emissions in industrial power plants and utilities.

• In the maritime segment Yara offers SCR and scrubber technologies to abate
NOx and SOx (sulphuric oxide) emissions.

91
 Calcium Nitrate applications in wastewater treatment, concrete
manufacturing, oil fields and latex industries

• Nutriox™ provides H2S prevention for Corrosion, Odor and Toxicity control
of municipal and industrial waste water systems

• Nitcal™ is a multifunctional concrete admixture serving concrete admixtures

companies around the world

• PetroCare™ prevents well souring and supports drilling in oilfields around

the world, for both the oil majors and the service companies that serve them

• Dipcal™ is the premier dipping coagulant for the latex industry

• Other important applications are in the ceramics, bio-gas and solar CSP
industries

92
Technical Nitrates for Civil Explosives

• Various grades of Ammonium Nitrate and Calcium

Nitrate for use in the civil explosives and mining
industries

• Largest customer segments are civil explosives

companies, open-pit coal and iron mining sectors

93
 Animal Feed industry with several nutritional products based on
core chemicals
 Feed Phosphates
– Macro-minerals such as phosphorus and calcium are essential elements to sustain healthy
and productive animal growth

 Feed Acidifiers
– Antimicrobial effect and lowering pH, replace AGP (antibiotic growth promoter) and
effective against salmonella and moulds

 Feed Urea
– Source of NPN (non-protein nitrogen) used by rumen micro-organisms forming proteins,
replacing part of vegetable protein

 Ammonia for fermentation

– Amino acids like lysine, methionine, threonine are essential to add to lower total use of
protein

94
Sources of market information
• Fertilizer market information
• Argus www.argusmedia.com
• Fertecon www.fertecon.com
• Fertilizer Week www.cruonline.crugroup.com
• Profercy www.profercy.com
• The Market www.icispricing.com
• Green Markets (USA) www.fertilizerpricing.com
• Beijing Orient Business (China) www.boabc.com
• China Fertilizer Market Week www.fertmarket.com

• Fertilizer industry associations

• International Fertilizer Industry Association (IFA) www.fertilizer.org
• Fertilizers Europe (EFMA) www.fertilizerseurope.com

• Food and grain market information

• Food and Agriculture Organization of the UN www.fao.org
• International Grain Council www.igc.org.uk
• Chicago Board of Trade www.cmegroup.com
• World Bank commodity prices www.worldbank.org
• US Department of Agriculture (USDA) www.usda.gov

95