Vale, the world’s largest producer of iron ore, is to use some of its massive profits to increase the output of fertilizer, now Brazil’s second most costly import. The mining and logistics company plans to invest $16 billion dollars on opening new mines and expanding ones it has acquired recently in the next five years.
Up to 70% more of the soya, maize, sugar cane, coffee and the many other crops grown in Brazil will be needed to feed the extra billions expected to boost the world population in the next two decades. Much more fertilizer will have to be used for this to be achieved.The administration led by Brazil’s tough president Ms Dilma Rousseff is taking steps to ensure that the extra will be produced locally. Two thirds of the 25mt (million tonnes) or so now used each year is imported.
Vale and the Petrobras oil company have been struggling for years to find a formula which would allow Vale to develop the country’s principal reserves of potash, 90% of which is now imported. These reserves are adjacent to an important oilfield Petrobras owns in the north eastern state of Sergipe, and enlarging it would threaten oil production there. A few weeks ago, Rousseff summoned the presidents of the two companies, along with the minister for mines and energy. An agreement was hammered out whereby Vale will develop the reserves, while in turn Petrobras will become the country’s leading producer of nitrates, utilizing some of the huge reserves of natural gas the company has found in recent years for the purpose.
Vale will be responsible for developing potash and phosphates. At the moment, only 10% of the potash, 23% of the nitrates and 55% of the phosphates used in Brazil are produced locally. The rest is imported at a cost of US$5–6 billion dollars a year. More than 16mt of the three types of fertilizer will be imported this year, compared with 10.5mt in 2002. Domestic output has increased by only 1.4mt in the past ten years and will total about 9.5mt this year.
Six per cent more fertilizer is now needed in Brazil each year, as the amount spread per hectare has shot from 70kg 1995, to 130kg last year. Many medium and small farmers still use little or no fertilizer, even though the soil in much of Brazil is poor, so much more fertilizer is needed than in neighbouring Argentina. The amount of soya, sugar cane and coffee produced per hectare has soared in recent years in Brazil, mainly because more fertilizer has been used.
Last year,Vale paid almost $5 billion for the assets of Brazil’s two leading fertilizer producers, Bunge and Fosfertil, after the two companies had decided that raising the huge sums needed to keep pace with booming demand was
beyond them. As well as expanding these mines,Vale is now preparing to open a large phosphate mine in the Mendoza province in Argentina, in the mineral-rich foothills of the Andes. This mine is expected to produce 2.4mt a year in a first phase due to start in 2014, 4.3mt in a second stage.
Vale has been searching for projects where some of the huge profits from the export of iron ore can be invested. It costs about $40 to mine a tonne of iron ore and get it to a port, but each tonne is now sold for almost $200, so Vale has plenty of spare cash. To produce each million tonne of fertilizer, about $1.6 billion has to be invested in opening a mine, and it takes between four and seven years for a mine to start producing after the go-ahead is given. Such mines normally continue to produce for up to 50 years.Vale is now concentrating on building the complex infrastructure which will be needed to get the fertilizer to be produced in Argentina to ports and onto ships. A total of 350km of brand new rail track will be laid to allow the phosphate to travel 800km by train to the port of Bahia Blanca, where a 1,600tph (tonnes per hour) shiploader will be installed. About two million cubic metres of gas will be needed each day to process the ore containing mineral into phosphate, and a new pipeline is being built to take the gas to the mine.
Brazil’s exports to neighbour Argentina now earn far more than what it imports from there cost. Once the phosphates start moving, however, trade between the two countries should quickly move into balance, which Argentina is anxious to see. Vales project is the largest investment ever made by a foreign company in Argentina. Because only about 25% of the Brazilian territory has been thoroughly surveyed by geologists until now, other large deposits of minerals suitable for processing into fertilizer are likely to be found. One such reserve containing mineral with a 40% potash content has been found 800 metres below the surface in the Amazon area. Up to $4 billion will be needed to develop these reserves to the point that 4mt of potash could be produced each year. Vale is not the only company active in fertilizer in Brazil either. Apart from Petrobras, which itself plans to spend several billions on plants to convert natural gas into ammonia and then into fertilizer, the Canadian ‘Verde Potash’ company plans to invest $200 million on opening a mine in Minas Gerais state. The company estimates deposits contain 1.2 billion tonnes of rock with a potash content of 9.5%. This will allow more than a million tonnes to be produced there from 2014 onwards. The OGX company, founded by Eike Batista, son of one of the founders of the Vale company and now one of Brazil’s richest men, plans to use some of the natural gas OGX has found in the north eastern state of Maranhao, fast becoming a major producer of soya and maize, into fertilizer.