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Urea Market in Brazil

With fertile land, extensive and favorable climate for agriculture, Brazil is a leading producer and worldwide supplier of food. Brazil stands out in the production of crops like soybeans, corn, rice, beans and sugar cane. Rice and beans are primarily for domestic consumption, Corn is primarily used for animal feed and production of animal protein.

Crops Summary of the total planted areas in Brasil

C ro p s Soybe an C o rn S u g ar ca n e C o tto n C o ffe e C i t ru s D ry b e a n R ice W he at T ri t i c a l e Rye B a rle y

2008 000 h 21.272 14.385 8.219 1.062 2.222 825 3.769 2.858 2.417 74 4 74

2009 000 h 21.736 13.791 8.604 808 2.371 833 4.149 2.888 2.433 69 4 78

2010 000 h 23.404 12.883 8.837 819 2.292 842 3.525 2.702 2.141 60 3 85

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Planted Areas (000 h)

2.702 3.525 842 2.292 819 8.837 23.404 Sugar cane Cotton Coffee Citrus Dry bean 12.883 Rice Wheat 2.141 60 3 85 Soybean Corn

Source: IBGE Brazilian Institute of Geography

In 2009, Brazil demanded the total of 3,7MMt of Urea, in which 2,9MMt was applied in agriculture as Fertilizer. The main urea consumer crops in the country are Corn, Coffee and Sugar Cane which together sum up over 70% of the countrys urea consumption. Cotton, Potato, Beans and Wheat together sum 20%, and around 10% are consumed by other cultures. Majority of Urea consumption is designated to the Center West , South East and South regions of the country. A smaller quantity is demanded in the North East. The consumption of Urea in the country has grown around 4% every year so it is expected that 5MMt consumption could be a possible number in the next 5-6 years. Currently, Urea is imported from the main available sources in the world through the main traders and suppliers in the international market. The figure below, show the origins and its percentage of relevance to Brazilian market.

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UREA Cunsumption 2009 (t/year) Import National Pruduction Export Installed Installed Capacity 2009 (t/year) Petrobras FAFEN BA Petrobras FAFEN SE Vale PR

UREA in Brazil 2009 3.706.642 Applications % 1.940.844 Fertilizers 1.134.600 Intermediate Chemical 15.358 Animal Feed
Chemical Process

78,9 16,9 2,9 1,3

1.782.000 495.000 657.000 630.000

Source: ABIQUIM National Association of Chemical Industry

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As shown above, Brazil is highly dependent on importation of Urea. The same situation is extended to all NPK fertilizer consumption which around 60% of the consumption is imported. The actual scenario is influencing Brazilian government and the national industry to move towards expanding the national capacity in order to diminish the dependence of imported products, therefore, Petrobras and the national government are currently working on the following projects of Urea and Ammonia production: Urea Capacity t/year 1.210.000 665.000 0 Ammonia Capacity t/year 761.000 400.000 519.000 Gas Consumption (approx.) 1.7Mm3/day 1Mm3/day 1.2Mm3/day Start up date July 2014 Dec 2015 Dec 2014 Cost (Approx.) USD 2,0Bi USD 1,0Bi USD 1,3Bi Gas Source Bolivia Bolivia Bolivia

Petrobras Projects UFN III - Trs Lagoas MS UFN IV - Linhares ES UFN V - Uberaba MG

Impact in Brazil Production Capacity Increase Production Capacity Increase Ammonia Self-sufficiency

There are also other discussions of Urea plant projects in the Southern state Paran. The project of the consortium Azoto led by the Cooperatives of Parana State (CONAPAR-COONAGRO) is currently under negotiation with Petrobras and National Government to determine the gas availability and price. In this project, the Japanese company Toyo is competing with the Chinese Chengda to be the technology provider. There are a few other national investors prepared to participate on this venture. Please find details below: Urea Capacity Ammonia t/year Capacity t year 190.000 Gas Consumption (approx.) 600Km3/day Start up date Dec 2013 Cost (Approx.) USD 400MM

Project

Impact in Brazil Parana Self Sufficiency

Gas Source Petrobras (Bolivia)

Consrcio Azoto (Conapar) PR 330.000

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Logistics Alternatives Railroad in operation: Between Santa Cruz and Corumba is operating a railroad rail system called Bolivian Red Oriental (formerly Railroad Brazil - Bolivia), with gauge of 1.00 m and 643 km long, recently privatized. Reportedly, there is no mutual traffic between these two railroads, it is necessary to transfer the goods from one train to another, passing through customs. After customs, there is a line with 1,00 m gauge (old EFNOB - Northwest Railroad of Brazil), linking Corumb (MT), Campo Grande (MS) and Bauru (SP), and a branch line between Campo Grande and Ponta Pora (border with Paraguay), a total of 1,621 km of track. The distance by rail between Corumb and Bauru is 1299 km and between Corumb and Campo Grande 459 km. This railroad was privatized in 1996 and currently administrated by ALL. Bauru connects to the mesh of Ferroban (formerly FEPASA), which gives access to the port of Santos, in the same vein, by extension Mairinque. To reach out to the ports of Sepetiba and Rio de Janeiro, you need a transfer or Sao Paulo in Bauru, to gauge trains of 1.60 m.

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For reference, please see the whole operation of ALL (Amrica Latina Transportes)

Railroad transport cost and transshipping at border could not be calculated by ALL. For this study, it would be necessary to analyze a co-investment on wagons with ALL as their capacity is limited to their present operations. Usually, rail transportation costs in Brazil are similar to road transportation, but due to the need of investment on equipment and transshipments (Gauge changes on the route) the costs could be higher.

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Road Alternative, Bolvia-Brazil In Bolivia, from the border town of Puerto Suarez, the highway is in poor condition. From Bolivia Border to Campo Grande (MS) to there are 432km of paved roads. From Campo Grande all regions of Brasil can be reached but distances from 500km to 1500km will be the basis for national distribution.

Transport Cost Estimate:

Inland Road transport estimative Bolivia-Brazil - Truck load 25Mt each Cochabamba to Rondonpolis (MT) or Maring (PR) - Cost R$ 340/Mt (Approx. USD 212/Mt); Santa Cruz to Rondonpolis (MT) or Maring (PR) Cost R$ 244/Mt (Approx. USD 152/Mt); Clearance, transshipment and fees Cost (approx.) R$ 60/Mt (Approx USD 37);

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Important Information - Custom clearance is necessary at Border, the material will be unloaded at Bonded Warehouse, Cleared and then transshipped to the trucks that will do the Brazilian part of the journey. This makes unitization of the cargo necessary, preferably into Big Bags (1Mt) as there is no infrastructure for Bulk transshipping which makes bulk shipments unviable for road transportation from Bolvia to Brazil. Inland Road transport Brazil The estimative below is based on transportation from the main Fertilizer Port in Brazil, Paranagu Port to two of the most important delivery regions in the country. The routes below are currently practiced by Brazilian market and can be used for comparison with Bolivian import cost. Port Paranagu (PR) to Rondonpolis (MT) 1.600Km - Cost R$ 110/Mt (Approx. USD 68/Mt)

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Port Paranagu to Maring (Paran) 530Km- Cost R$ 65/Mt (Approx. USD 40/Mt)

Note: The exchange rate used on this report were based on USD 1 = R$ 1.60

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Distribution Distribution in Brazil is mainly done by truck (25MT load each), the logistics is challenging as there is limited availability of vehicles and the roads are not in good conditions although they are mostly pavemented. Clients locations are spread around the huge agricultural area of Brasil, most of the blending facilities of the Fertilizer industry are based near the ports of Paranagu, Santos, Vitria and Rio Grande. ADM and Bunge also have blending facilities based in Cuiab and Rondonpolis, both situated in Mato Grosso State. For distribution it interesting to considering hiring Warehouses in Key cities such as Cuiab or Rondonpolis (Mato Grosso state) and Maring (Parana state), this way we can provide FOB Warehouse base sales, enabling our clients to pick up the material at their own cost if the sales are broken into smaller quantities. Distribution scheme should be submitted to a deeper analysis as it could be driven by the commercial agreement with our clients. Main Clients current Import Forecast The list below shows import forecast for 2011 of some of the main potential clients in Brazilian Market. There are many others to be included for a complete list, but these concentrate majority of the quantity commercialized in the country. Total Demand (KMt/y) 300 400 450 73

Customer ADM BUNGE HERINGER COABRA

Brazil Urea Prices National Vs Imported

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Forecast of Gas Prices (2004-2012)

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