international
Fertilizer up in Europe, but worries remain Despite improved market picture, many European fertilizer producers wary of adding too much new capacity too soon The current shortage of fertilizer in the world export market and the unsatisfied demands of many developing countries, particularly in Asia, have transformed fertilizer exports into a sellers' market. This reversal has helped to pull the export-conscious fertilizer companies of western Europe out of the profitless doldrums that they have shared for several years with virtually every other fertilizer producing country in the world. But despite the improvement, western European producers are tempering their satisfaction with a dose of sober caution. They know that they can expect slower growth rates in their own domestic markets. They know that they can look forward to much stiffer competition from their eastern European counterparts, both in their own western European markets and in their cher-
ished export markets. They know, too, that they must guard against what Arnold Robinson, vice chairman of Fisons, calls an "overoptimistic reaction" that could lead to too much new capacity, too soon. After outlining the good news and bad news about the European fertilizer industry at the Fertilizer Institute's third marketing conference, held last week in White Sulphur Springs, W.Va., Mr. Robinson suggested a way of avoiding another overcapacity cycle that is certain to be argued and debated in every corner of the fertilizer world. He hinted that the information exchange agreement, a euphemism for cooperative investment planning that producers in the U.K. signed with their government's blessing two years ago, should be expanded throughout all of western Europe and even to North America. For western European fertilizer producers to be wary of overcapacity is understandable. The industry is heavily export oriented; in the 1968-69 fertilizer year, about 36% of the nitrogen fertilizer produced there was exported. And because it is export oriented, the western European industry joined with other fertilizer industries throughout the world on a building spree during the
1960's geared to satisfy what it thought would be a booming export demand from developing countries. However, the developing nations bought only what they wanted rather than what others thought they needed. Meanwhile, many developing nations built their own fertilizer plants. Oil companies entered the picture. Eastern European fertilizer became a factor in the world market. And a massive scaleup of plant size aggravated an already severe overcapacity problem. As a result, western European fertilizer exports dropped and a surplus capacity position became even worse. Exports of nitrogen fertilizer, which climbed steadily in the early 1960's to reach 3 million metric tons in the 1968-69 fertilizer year, fell the following year to 2.6 million metric tons. In the last fertilizer year (1971-72), they inched back up to 2.7 million metric tons. There is little doubt that exports will remain an important part of western Europe's fertilizer business. For some countries, in fact, export markets are critical. The Netherlands, for example, exported 65% of its fertilizer production last year. At least one reason why exports will remain important is that the growth
Both East and West Europe have a big stake in fertilizer CONSUMPTION
PRODUCTION
EAST EUROPE Albania Bulgaria Czechoslovakia East Germany Hungary Poland
Potash (K 2 0)
Nitrogen (N)
1971-72 Phosphate (P2O5)
1970-71 Potash (K 2 0)
Nitrogen (N)
111
Thousands of metric tons
1970-71 PhosNitrogen phate (N) (P2O5)
Potash (K 2 0)
1971-72 PhosNitrogen phate (N) (P2O5)
28.0
17.7
0
30.0
17.9
0
27.0
17.7
2.5
29.0
601.6 352.1
147.6 313.2
0
562.0 336.4
145.8
0 0
378.8 419.0
235.1
321.8
349.6
25.0 514.2
395.2
429.5 167.2
511.2
410.0
613.9
217.0
229.0 1114.2
350.3 1029.9
0
388.2
330.8 414.2
0
377.5
174.4
0 0
391.2 822.4
0
366.9
635.1 203.2
4605.0 7521.5
2211.0 4278.7
2419.0
599.2
0
1080.8
Romania
646.9
244.2
0
826.8
705.6 244.7
U.S.S.R. TOTAL
5423.0
2500.0
4087.0
8827.0
4418.6
6506.0
6055.0 9656.7
2772.0 4805.4
218.9 593.7
102.2
0
744.9
0
231.6 613.1
123.1 736.4
France
1351.1
1450.8
1841.9
1401.0
West Germany Italy
1504.6 955.8
945.8
2293.0 155.0 0.9
1320.8 1034.2 1004.4
1500.0 942.7 504.1
0 525.0 1.2
383.4
2426.0
4807.0 7233.0
17.9 266.0
Potash (K 2 0)
1.8 48.1 569.0
419.0 576.7
357.9
393.5
250.9
638.8 309.2
907.1 431.2
718.6 179.7
1262.6 22.5
2574.0
5182.0
2442.0
2804.0
5097.0
8260.3
4618.6
5656.0
24.2
385.6
WEST EUROPE Austria Belgium
Netherlands Norway Spain Others TOTAL
929.9 369.8 592.0 1862.4 8378.2
509.9 275.2 105.7 487.0 1-609.4 6230.9
4817.0
673.0 1931.6 8593.1
125.8
112.8
159.2
139.4
112.4
0 1796.7
167.2 1453.4
143.3 1809.4
181.3
167.2
149.1
163.9 171.0
1388.8
1498.0
1932.0
1505.6
2376.5 171.8 1.4
1130.8 594.5
913.1 518.4
1184.6
1131.1 624.9
934.9 574.7
1233.5 250.4
405.3
109.3
373.6
554.0 1531.4
78.2 578.0 2029.2
52.6 432.0
101.3 54.4
126.3
0 502.0 1.2
6297.9
4849.6
6562.4
294.8 111.4
0
1597.8 5688.7
225.3 135.0 68.1 206.0 1406.4 4954.7
71.6 262.0
81.5 667.0
466.0
2474.9 7157.6
1586.2
1398.6
5911.0
5182.9
Source: United Nations Food and Agriculture Organization
June 18, 1973 C&EN
13
rate in the western European domestic market is slowing down. European farmers already apply much more fertilizer per acre than do U.S. farmers, so there isn't much room for further increases. In Britain and France, the application rate of nitrogen and phosphorus is about triple the U.S. rate. And in the Netherlands it is 10 times greater. Now, western European producers are feeling an additional pressure in their own back yards. East bloc exports to the West are increasing significantly and are putting strong pressure on prices and profit margins. Mr. Robinson thinks that East European fertilizer exports will continue to increase and, because of the international nature of the fertilizer business, they will affect not only western European producers, but others as well. In the middle 1960's, the East bloc countries were net importers of fertilizer nitrogen and provided a significant outlet for western European material. They still import some fertilizer, but they have swung from a net import position of 100,000 metric tons in 1965-66 to a net export position of almost 800,000 tons last year. Just about all eastern European countries export fertilizer, primarily nitrogen, but ammonium phosphate as well. Fertilizer consumption in eastern Europe is increasing rapidly and surpasses that in the U.S. and western Europe. Along with consumption, capacity is increasing. Ammonium nitrate capacity in eastern Europe, for example, has grown from almost nothing 10 years ago to 7 million metric tons today. An additional 7 million metric tons of ammonium nitrate capacity is scheduled to be built by 1976. Inevitably, says Mr. Robinson, there will be imbalances between this capacity and demand and, therefore, the East bloc will continue to export to western Europe. Some of these East bloc exports already have disrupted western European markets, where some countries have imposed their own controls on this trade. However, Mr. Robinson thinks that individual action may be inadequate. Collective action, perhaps by the European Economic Community, may be necessary, he says. Although western European fertilizer producers are uneasy about possible developments on the other side of the vanishing iron curtain, they are at least satisfied that things look better than they did a few years ago. The imbalance between supply and demand has improved, both in western Europe and worldwide. Prices and profits have strengthened. Early this year, export prices on European urea were almost 50% higher than they were a year ago. Ammonium phosphate and triple superphosphate prices were up a third. Mr. Robinson says that western European producers have cut back on their capacity expansion rate and thinks that, if they continue to do so, they could 14
C&EN June 18, 1973
reach a reasonable supply-demand balance in one to two years. But, he cautions, if producers overreact to the improved market, excess capacity will once again plague the industry. It was to prevent this that major U.K. fertilizer companies signed their information exchange agreement in 1971. Although it still is too early to tell, Mr. Robinson thinks that such agreements are useful and that a similar arrangement "resulting in rational investment planning" should be established throughout western Europe. He recognizes that there will be legal and practical roadblocks, but he also
believes that avoiding another overcapacity cycle will be worth the effort. But the predominantly American audience at the Fertilizer Institute meeting perked up its ears when Mr. Robinson dropped his closing bombshell. Successful investment planning in Europe, he says, must be matched by a "regular and frank exchange of information on forward plans" by both European and North American industries. He concedes that it probably will have to be on an informal basis—but even this may be too much for some U.S. producers and the U.S. Justice Department to swallow.
Canadian petrochemical firms seek help Canadian petrochemical producers, cleus for broader chemical complexes. concerned about low profitability and a Although the specific products have not dwindling share of their domestic mar- been spelled out yet (their selection kets, are asking for government help to depends in part on how government remain economically viable. Their officials respond to CCPA's proposals), views were formally presented early this most of them presumably will be based month to Minister of Industry, Trade & on ethylene. Commerce Alastair Gillespie by the Between now and 1980, however, Canadian Chemical Producers' As- CCPA sees a need for government association. sistance so that petrochemical proCanada's petrochemical companies ducers can build the large plants they claim they are thwarted by a raft of need in the near future to regain much problems in their fight to maintain of their lost Canadian markets. Here their home markets in the face of in- again, details have not been spelled out, tense import competition. Among them but CCPA is urging government involveare high costs for feedstocks, energy, ment in four areas. It is asking for plant construction, and transportation, support both to offset higher equipment and relatively low tariff protection. and construction costs in Canada comBut far and away the most vexing pared to those in the U.S. and also to problem is that the Canadian market offset the high operating costs likely for most major chemicals is just not big from running large plants well below demand enough in itself to support plants of a capacity while Canadian size economically competitive on a catches up with supply. It also would world basis. As a result, unit costs are like to see help in overcoming disadvantages caused by high raw mahigher. Although consumption of petrochem- terial and transportation costs. It recicals is rising at a rate of about 10% a ommends that the government enyear, Canadian production has been courage rationalization or consolidation growing only half that fast. The deficit within the industry and urges that in Canada's foreign trade in petro- "apparently unintentional hindrances" chemicals, CCPA estimates, will grow to joint industry ventures be removed. from $160 million in 1971 to more than It visualizes more operations like the $300 million by 1975 in the absence of proposed but long stymied Sarnia Olefins and Aromatics Project, a partnergovernment intervention. Meanwhile, the industry's profits ship between Du Pont of Canada and have been severely depressed and new Polysar that would produce a billion capital investment discouraged. Return pounds a year of ethylene along with on gross capital investment, before other basic petrochemicals. Finally, it taxes and interest, for the overall in- is pushing for a policy aimed at redustrial chemicals industry slumped straining imports and reserving the from 4.5% in 1968 to 2.6% in 1971; the Canadian market. CCPA is generally encouraged by 1971 return for all manufacturing in early government reaction to its proCanada was 7.3%. At one time, the industry was hopeful posals, although they obviously are that greater access to U.S. markets politically sensitive. For one thing, the would alleviate many of its problems. Canadian petrochemical industry is But it has since concluded that such largely the domain of big, multinaaccess is unlikely any time in the fore- tional companies; apparent government handouts to such firms might be seeable future. CCPA now suggests that attention be less than popular. Higher trade barfocused on 10 to 15 key petrochemicals riers against imports also seem politCCPA consefor which it expects the Canadian mar- ically unappealing. ket to reach a size large enough to jus- quently is not optimistic that it can tify large-scale, world-competitive convince the government to either raise plants by the early 1980's. These key tariffs or impose import quotas for chemicals would in turn provide a nu- petrochemicals.
