February 20, 2019

On January 1, 2018, PotashCorp and Agrium completed a merger of equals creating the world’s largest provider of crop inputs and services. The new company, Nutrien Ltd., will play a critical role in helping growers increase food production in a sustainable manner.

The following management’s discussion and analysis (MD&A) is the responsibility of management and dated as of February 20, 2019. The Board of Directors of Nutrien carries out its responsibility for review of this disclosure principally through its audit committee, comprised exclusively of independent directors. The audit committee reviews and, prior to its publication, recommends to the Board of Directors for approval of this disclosure. The Board of Directors has approved this disclosure. The term “Nutrien” refers to Nutrien Ltd. and the terms “we,” “us,” “our,” “Nutrien” and “the Company” refer to Nutrien and, as applicable, Nutrien and its direct and indirect subsidiaries as a group, including, for greater clarity, Potash Corporation of Saskatchewan Inc. (PotashCorp or PCS) and Agrium Inc. (Agrium). This MD&A is based on the Company’s audited consolidated financial statements for the year ended December 31, 2018 (financial statements) prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (IFRS) unless otherwise stated.

This MD&A contains certain non-IFRS financial measures which do not have a standard meaning under IFRS including:

See the “Non-IFRS Financial Measures” section which begins on page 77 for a description of and further information on these measures and reconciliation to the most directly comparable measures under IFRS.

Also see the cautionary statement on forward-looking information on page 76.

All references to per share amounts pertain to diluted net earnings (loss) per share. Financial data in this annual report are stated in US dollars unless otherwise noted.

See page 87 for the definitions of financial and non-financial terms used in this annual report.

See pages 157 and 158 for a list of abbreviations and terms used in the annual report.

Additional information relating to Nutrien (which, except as otherwise noted, is not incorporated by reference herein), including our first quarter 2018 unaudited interim report, second quarter 2018 unaudited interim report, third quarter 2018 unaudited interim report, and the Annual Information Form for the year ended December 31, 2018, can be found on SEDAR at www.sedar.com and on EDGAR at www.sec.gov. The Company is a foreign private issuer under the rules and regulations of the US Securities and Exchange Commission (the SEC).

Grey shading has been used throughout this MD&A to emphasize required regulatory and IFRS comparative figures, which are amounts previously reported by PotashCorp as it is the continuing reporting entity for accounting purposes.

The information contained on or accessible from our website or any other website is not incorporated by reference into this Management’s Discussion and Analysis of Financial Condition and Results of Operations or any other report or document we file with or furnish to applicable Canadian or US securities regulatory authorities.

We have a world-class integrated portfolio of assets that provides opportunity to reduce cost, grow earnings and deliver supply chain synergies that create value for the grower and our shareholders.

We unlock this potential by building a unique relationship with the grower by establishing the best channel to the customer for reliably and effectively serving their needs,

and by backward integrating across the agricultural value chain with leading production assets and a solutions offering that is unique within our industry.

As a leading diversified company in the agricultural space, our strategy focuses on creating value through the cycle and a platform for long-term growth.

Build the Channel

Enhance the Content

Build a Unique Relationship with the Grower

We are the leading retailer of crop inputs and services across key global agricultural markets, primarily in North America, Australia and South America. With more than 1,700 Retail locations and 500,000 grower accounts worldwide, we interact with growers on a daily basis. This relationship provides valuable insight to help us anticipate the needs of our end-customer.

Create the Best Channel to the Customer

Nutrien creates value through integration of our supply chain and market approach—as demonstrated by our integrated footprint in North America. Nutrien has the premier North American storage and distribution network with more than 2,100 distribution points. We are focused on having the systems, processes, and people in place to connect our business from site to customer.

Own Leading Production Assets and Proprietary Offerings

Nutrien is the world’s largest producer of crop nutrients with approximately 27 million tonnes of annual sales. We have distinct scale, market and cost advantages across our portfolio that provide a significant competitive advantage.

We also produce a range of high-quality proprietary crop protection, seed and crop nutrient products that generate higher margins for our Retail business unit. Having access to such a large offering allows Nutrien to provide meaningful solutions and yield-enhancement opportunities to our customers.

#1

Largest Potash

Producer

>1,700

Proprietary Products

Available

6.2 Mmt

of Storage Capacity

Outside of Facilities

>1,700

Retail Locations

Globally

>500,000

Grower Accounts

3RD

Largest Nitrogen

Producer by Capacity

25%

of Retail Total Gross

Margin is Proprietary

Product Sales

_~15,000

Railcars

>17,000

Total

Products Available

to Growers

>50%

of Customer Sales Linked to

Nutrien Ag Solutions

Digital Platform

Ethics and Human Rights

Ethical behavior is the basis of our core values. Acting with integrity helps us attract and retain talent, and reinforces our relationships with stakeholders. We are committed to the 10 principles of the United Nations Global Compact, and we take our role to protect human rights seriously while following all laws and regulations related to anti-discrimination and equal employment.

Safety

With safety as a core value in Nutrien, our priority is that everyone goes home safe, every day. Our safety culture is ingrained in everything we do; it extends to the care and protection of our people, the environment, our products and communities. As committed safety leaders, we are guided by three principles: do it safely or not at all; there is always time to do it safely; and care for each other’s safety and health. We strive for zero life-altering injuries to employees and a reduction in our recordable injury rates.

Environment

We believe it’s critical to minimize the impact our operations and products have on the environment with comprehensive stewardship programs at our sites and with key stakeholders.

We also work closely with our growers to help them sustainably intensify production with investments in digital technology, innovative product lines such as Environmentally Smart Nitrogen (ESN^®) and science-based management plans such as 4R Nutrient Stewardship initiatives. Our priority is to continually improve upon our environmental performance.

Stakeholder Engagement

Nutrien has a comprehensive approach to stakeholder engagement. Ongoing, two-way stakeholder dialog across a variety of channels helps us focus and refine our efforts to minimize negative impacts and maximize positive outcomes. We are committed to ensuring that our sustainability priorities match those that matter most to our stakeholders. In 2018, we engaged with our stakeholders to help determine our priority sustainability topics. Three external

sustainability-specialty companies held independent reviews, focus groups and interviews to ensure our stakeholders could speak openly and help shape our strategy.

Community Relations

We don’t just operate in communities, we are a part of them. It’s important to us that we develop meaningful partnerships to strengthen, support and enhance our communities. Through volunteering, outreach, investment and employment opportunities, we

help grow our world. In 2018, we invested $17 million dollars in communities and partnered with over 2,500 non-profit organizations. A few highlights in 2018 were continuing our support of Shock Trauma Air Rescue Services (STARS) in Saskatchewan by funding a new H145 helicopter and supporting youth education programs such as Caring for our Watersheds.

In September 2018, a Company-wide Employee Volunteer Program was implemented allowing employees one day off to help grow our world.

In 2018, our Potash business unit continued to reduce cash cost of product manufactured (COPM) through Merger synergies and rebalancing our overall portfolio to increase production from our lower cost mines.

Our Nitrogen business unit in 2018 also achieved significant improvements in cost and utilization rates as a result of Merger synergies as well as innovation and process improvements. Across all three nutrients, we are continuing to share and capitalize on maintenance practices to reduce capital spending and improve the reliability of our facilities.

Retail continues to drive margin improvement by focusing on proprietary product growth and reducing overall operating cash costs. The consolidation of Retail acquisitions also allows for cost synergies as more customers are served effectively by centralized supportive operations. These efforts have contributed to the improvement in our cash operating coverage ratio and stability in EBITDA margins, while supporting record EBITDA in 2018.

The diversity of our asset base and stability of Retail earnings provides significant advantages for deploying capital through the agriculture commodity cycle. During low points of the cycle, we expect to focus on growing our crop nutrient production, share repurchases and transformational opportunities. At the high points of the cycle, we expect to shift to paying down debt and focusing on organic growth opportunities. The stability of Retail allows us to keep growing this business unit and our dividend throughout the cycle.

In 2018, Nutrien generated $2.0 billion of free cash flow and received $5.3 billion in net cash proceeds from the sale of equity interests in Israel Chemicals Ltd., Arab Potash Company and Sociedad Quimica y Minera de Chile S.A. due to regulatory requirements to dispose of these investments in connection with the Merger. The strength of our diversified earnings and receipt of substantial value for our equity investments allowed us to provide meaningful returns to our shareholders and invest in our organization.

Our goal is to provide shareholders a stable and growing dividend underpinned by growth in our Retail business unit. We increased the amount of dividends paid by approximately 17 percent in 2018 compared to the combined amount paid by our legacy companies in 2017.

In 2018, we also repurchased for cancellation 36 million shares for $1.8 billion. At the end of 2018, the existing share repurchase program was extended to 8 percent from 5 percent of outstanding common shares, and as of February 20, 2019, another 6 million shares have been repurchased for $297 million. We will continue to evaluate allocation of capital to further share repurchase programs in 2019.

Our focus on Retail growth was supported by approximately $600 million invested into US and Australian Retail acquisitions, global Retail greenfield

projects, and the purchases of Agrichem in Brazil and Waypoint and Agrible in the US.

Sustaining the performance of our assets is critical to the success of our company and ensuring timely and reliable product to our customers. The appropriate level of spend requires thoughtful analysis based on historical data and industry expertise to provide the best return for risk mitigation and to deliver optimal operational performance of our assets. In 2018, Nutrien spent $1.1 billion on sustaining capital, similar to the investment level in 2017.

In the process of prudent capital allocation decisions, it is important that Nutrien maintain its balance sheet strength and sustain its investment-grade rating. This was achieved in 2018 and we were able to improve upon various debt ratios by the end of the year.

Nutrien remains focused on investing in its world-class Retail distribution network in North America, Australia and Brazil. We believe the US provides the best opportunity for growth through acquisitions along with the highest margins and synergy realization. Australia remains a market with opportunities for additional acquisitions and proprietary product expansion.

Brazil represents a new focus for Retail growth as a major global player in the production of food and purchase of crop inputs and services. We expect to invest capital in Brazil in order to achieve a meaningful presence and provide Brazilian growers with the latest in yield-enhancing products, agronomic advice and digital tools.

We are evaluating debottlenecking and brownfield projects across our North American nitrogen network that could increase total capacity and our capability to produce higher-margin products. Despite the recent increase in global nitrogen prices and natural gas price advantages in North America, we do not believe greenfield nitrogen projects would be currently economically viable.

With approximately 5 million tonnes of incremental potash operational capability in Saskatchewan, we can bring on additional tonnes with minimal capital as global demand grows.

We are focused on developing new products, services and tools that meet the needs of our customers in their challenge to feed a growing planet.

Our user-friendly Nutrien Ag Solutions’ digital platforms and eKonomics tools provide our customers with industry leading data and analytics, helping them make informed decisions to improve yields and returns. Nutrien Ag Solutions award winning integrated digital customer portal includes account management, weather data and interpretation, and commodity data. In 2019, we will be adding other valuable applications such as

e-commerce capabilities, allowing both customers and crop consultants to place online orders for crop protection products, together with actionable crop plans and tailored agronomic insights.

We have invested in more than 1,700 proprietary products that include patented technology in micronutrients, crop protection and seed. Loveland Products^® is one of our key crop protection proprietary brands available to growers, as well as Dyna-Gro^® and Proven^™ – highly valuable seed options for growers of corn, soybeans, cotton and canola in North America and Australia. Over the

past five years, we have also invested in other agricultural technology companies, vastly increasing our portfolio of innovative products and options for our customers.

We are also providing financial services to growers under Nutrien Financial^™ and Ag Resource Management^™ (ARM^™). These provide specialized lending to US customers, some of which is backed by grower collateral. The combination of the two lending platforms provides complementary credit options, helping growers make timely purchases of required crop inputs.

Managing Performance

In 2018, we designed and implemented a performance management system which measures both achievements and behavior. This system provides accountability for results on measurable goals as well as ensures our culture and values are guiding day-to-day behavior of our employees and leaders.

Talent Attraction and Sourcing

In 2018, Nutrien established its Talent Attraction & Sourcing group, which specializes in Strategic Talent Outreach and Delivery. Using a candidate-centric approach, this group targets and attracts job seekers into Nutrien roles and establishes diverse candidate pools.

Employee Engagement

As a new organization, we are greatly interested in hearing the voices of our employees and understanding their experience with Nutrien. One way we plan to do this is through a global employee engagement survey to be conducted in 2019. The results of the survey will be used to provide a Company-wide perspective on engagement and experience and will allow us to prioritize organizational efforts.

Purpose Driven Culture

Nutrien articulated its greater purpose as one of its first orders of business. It unifies the organization and provides meaning to employees and their work. Purpose is at the foundation of Nutrien’s culture and is supported by two of our core values of safety and integrity, as well as our engagement principles of innovation, performance, inclusion and community.

Growing Our Diverse Workforce

We recognize that having a diverse workforce enhances our organizational strength and better reflects our customers and stakeholders. In 2018, we established a robust Diversity & Inclusion strategy that focuses on increasing gender diversity and match-to-market representation of visible minorities, including Indigenous peoples in Canada. Within the strategy, the organization is committed to increasing inclusive practices and sense of belonging for our employees.

Developing Our Employees

In 2018, Nutrien established its Strategic Talent Management process to manage organizational risk and succession in critical roles – a process stewarded by our Executive Leadership Team.

Our strategic and risk management processes are integrated with a view to ensuring we understand and benefit from the relationship between strategy, risk, and value creation. By considering risk throughout our strategic and business planning activities, we seek to align our strategy with our vision, and effectively manage the embedded business risks that could impact the achievement of our strategy.

Our approach to risk management is governed by our Board of Directors, including through our Board Committees, which oversee our Executive Leadership

Team in understanding the principal risks to our business and strategy and implementing measures to manage those risks, while achieving an appropriate balance between risk and return.

In 2018, Nutrien undertook a top-down, bottom-up approach with our Executive Leadership Team and management in each of our business units to review and refine our risk profile. Through this process, we identified and evaluated the most significant risks and developed an approach to monitor mitigation and changes over time. See page 56 for a discussion of our Key Risks.

In 2018, the Board played a critical role in developing the initial strategic road map for Nutrien and establishing the governance structure and policies that will support our key strategic actions that deliver value to all stakeholders.

Diversity is a core belief at Nutrien, and this is demonstrated by 33 percent of the Board being comprised of women. This diversity is invaluable and brings new and progressive perspectives and well-rounded skills to our Board. Nutrien formally adopted a Board Diversity Policy in January 2018 to help fulfill its diversity objectives. The policy provides that, although the selection of candidates for appointment to the Board will be based on merit, Board vacancy decisions will have regard for the appropriate level of diversity, including gender diversity. The Board Diversity Policy includes a target that women comprise not less than 30 percent of our directors.

It is imperative that directors understand our business, including its size, complexity and risk profile, and stay current with corporate governance, regulatory, industry

and other key issues to be effective members of our Board. Over the course of 2018, our directors continued to advance their knowledge of our business, industry, regulatory environment, as well as other topical areas of interest to enhance their effectiveness as directors and stewards of Nutrien.

To increase alignment with shareholders’ interests, all non-executive directors are expected to hold three times their annual retainer in common shares and/or Nutrien deferred share units (DSUs) within five years of joining the Board. We believe it is important that our senior leadership have an ownership mentality in Nutrien as well, with mandatory equity ownership required, with the CEO expected to hold five times base salary.

For a more comprehensive view of Nutrien’s corporate governance practices, please refer to our Meeting and Management Proxy Circular on our website:

Today’s grower relies heavily on the expertise of the agricultural retailer to provide yield enhancing solutions through all crop inputs, agronomic advice, application services, data analysis, and financing. Agricultural retail is comprised of a distribution network serving growers within a local region. The network of retail facilities allows for logistical and working capital efficiencies, while providing products and services to the grower in

a timely manner. Retailers deal with numerous vendors of crop inputs—so the scale of the retailer can provide procurement savings. The numerous challenges that growers face on a daily basis creates the opportunity for the retailer to be a business partner with the grower, and to provide meaningful support and guidance while improving economic and crop productivity.

The retail landscape in most developed agriculture markets is comprised of numerous competitors of differing size and ownership structure. It is a fragmented market and continues to require scale to be able to meet evolving grower needs. Growers want more services and solutions, rooted in analytics, delivered in a shorter time window than ever before.

In North America and Australia, we compete with large national retailers, co-operatives and smaller independent operations. In Brazil, the market is characterized by smaller independent owners and represents an opportunity for larger retailers, including Nutrien, to provide a significant improvement in grower performance.

Meeting the needs of the grower requires the capability to deliver a wide range of bulk products in a timely and cost-effective manner. The ability to provide application services, agronomic advice, technology and financial services further enhances the relationship with the grower. This requires significant scale and investment supported by the latest in agricultural technology. As the

majority of products and services are required in a very short application window, it is critical that the retail network is able to deliver when the grower is in the field. Strong relationships with suppliers of crop input products and prudent working capital management are crucial to the success of the retail operations.

Our Nutrien Ag Solutions^© and Landmark^© Retail businesses provide complete agricultural solutions, including nutrients, crop protection products, seed, services and agronomic advice to growers. As the world’s largest retail distributor of crop inputs, we operate more than 1,700 Retail facilities across the US, Canada, Australia and key areas of Latin America. Our operations service more than 100 crops globally, with corn, soybeans, wheat and canola being the majority of our business.

We have approximately 3,300 agronomists and field experts working directly with growers, helping them optimize crop yields and maximize economic returns on their farms. Our experts help growers implement sustainable management practices based on a thorough understanding of soils, climate conditions and crop requirements, and utilizing our portfolio of leading products and services.

We also manufacture and sell several advanced proprietary crop protection products and nutritionals under the Loveland Products^® brand, seed products under the brand names Dyna-Gro^® and Proven^™, and animal health products under the Dalgety^® brand. These leading crop input and animal health products provide

farmers and ranchers with a portfolio of useful and competitive choices to successfully grow and protect their crops and livestock. The crop protection products also provide meaningfully higher margins than vendor brand offerings as we procure and blend the products at seven formulation facilities across the globe.

Standard Retail Facility Operations

2018 Market Conditions

US/China trade restrictions pressured crop prices while weather issues impacted spring and fall application seasons.

Global grain and oilseed prices were mixed in 2018, influenced primarily by Chinese trade restrictions on US soybeans, broad market volatility from political uncertainty and historically high yields. Robust demand for corn and other grains helped support year-over-year price increases, while soybean prices declined. Farmers in key growing regions continued to plant large crop acreage and make decisions to maximize yields. Due to a strong demand environment, global grain stocks decreased year-over-year, including a 13 percent decline in US stocks. Global and US grains stocks-to-use is now the lowest since 2014.

North American planting was delayed due to cold and wet weather in the spring, resulting in a condensed application season and a shift in Retail sales into the second quarter. Crop conditions improved through the growing season, supporting above trend yields, increased production and reduced need for crop protection products. With one of the wettest fall seasons in the US in over 100 years, growers applied lower volumes of fall fertilizer and crop protection products.

In 2018, Australia weather was extremely dry with multi-decade low rainfalls. Crop input demand remained relatively strong despite the severe drought conditions.

Market Outlook

We expect increased acreage of input intensive crops such as corn and cotton to support North American crop input expenditure in 2019.

North American grower economics continue to be challenged as a result of the impact of record corn and soybean yields and the US-China trade dispute on crop prices and demand. However, given current prices and supply/demand fundamentals, we expect two to four million acres of increased US corn and cotton in place of soybeans, which is supportive of fertilizer, seed and crop protection demand.

The poor fall application season is expected to lead to a significant proportion of pre-plant field work to be done in the spring. We expect this to lead to higher-than-normal spring nitrogen demand, which tends to be particularly supportive to urea and UAN. Potash and phosphate demand is also expected to be supported by the short fall application window and high nutrient removal as a result of record yields.

Globally, weather will be an important factor as dryness is currently prevalent in Brazil, while conditions in Argentina have been relatively favorable. Soybean growers in both countries have benefited from the US-China trade dispute and higher prices, particularly on a local currency basis. The soil moisture conditions in Australia have improved, but precipitation during the winter crop growing season will be critical to 2019 crop production.

Potassium chloride (KCl), commonly called potash, is mined from ore deposits located deep underground or extracted from specific salt lakes or seas. Potash is sold into the agricultural market primarily as solid granular or standard products. Granular product has a larger and more uniformly shaped particle that can be easily blended with solid nitrogen and phosphate fertilizers; it is typically

used in more advanced agricultural markets such as the US and Brazil. Standard product is more commonly used in major Asian markets.

Potassium plays an important role in the growth and development of plants by improving root and stem strength, water utilization and disease resistance, thereby enhancing taste, color and texture of food.

Potash is found in significant quantity and quality in a limited number of countries. Canada has the largest known global reserves and approximately 35 percent of global production capability. More than 70 percent of the world’s potash capacity is held by the six largest producers. Our primary competitors are located in Belarus, Canada, Germany, Israel, Jordan and Russia.

Most major potash consuming countries in Asia and Latin America have limited or no indigenous production capability and rely on imports to meet their needs. This is an important difference between potash and the other

major crop nutrient businesses. Trade typically accounts for approximately three-quarters of demand for potash, which results in a globally diversified marketplace.

The demand growth rate for potash has outpaced that of other primary nutrients, reaching over 4 percent CAGR between 2013-2018. This growth is driven by the biological requirement of higher yielding crops and improving soil fertility practices, particularly in emerging markets where potash has been historically under-applied and crop yields lag.

Securing access to high-quality deposits in a country with both political stability and infrastructure availability can present significant challenges to building new potash capacity. In addition, the extensive time and cost of building greenfield capacity provides a significant

advantage to producers with the capability to expand production from existing facilities.

The most recent greenfield projects are estimated to have a cost of $2,300 to $2,700 per tonne of capacity with a seven-year timeline to commercial production.

Nutrien is the world’s largest producer of potash with access to decades of low-cost reserves from our six potash mines in Saskatchewan. We have at least 5 million tonnes of incremental operational capacity that we can bring on with limited capital as global demand grows. We also have the ability to add further brownfield expansions in Saskatchewan that are much lower cost than greenfield expansions. We have the most extensive distribution network in North America, and our investment in Canpotex provides low-cost marketing and logistics to the approximately 40 international markets we serve.

Nutrien’s potash mines represent some of the lowest cost and highest quality mines in the world. We take great care

to ensure our mines run at optimal levels and to undertake preventative maintenance to minimize safety risk and unscheduled downtime.

In September 2018, Nutrien announced the launch of the Potash Full Potential Program to drive a step change in safety, productivity, lower cost, and increase flexibility across our operations network in Saskatchewan. The program is also establishing the digital operations strategy for Potash and will leverage data, advanced analytics, automation and many other new technologies to accelerate results. We have commenced work at one site and will extend the program across our network through 2021.

2018 Market Conditions

Robust potash consumption in key consuming regions resulted in the second consecutive year of record global potash demand.

We estimate global potash shipments reached 66.5 million tonnes in 2018, an increase of approximately 1.3 million tonnes from 2017, which represents a three-year CAGR of 3.3 percent and a five-year CAGR of 4.5 percent.

North American and South American growers replenished soil nutrients following record production and elevated yields, while growers in China and Other Asia improved soil fertility practices as a result of increased soil testing and improved agronomic practices. India continues to face political barriers to significantly growing potash demand; however, the agronomic need and willingness of farmers to improve yields persists.

Supply from new projects in Canada and the Former Soviet Union (FSU) region was slow to ramp up with less than 1.4 million tonnes of new potash from greenfield projects being produced in 2018. Limited new supply and strong global demand led to year-over-year price increases in spot markets of around 20 percent. Potash contracts with customers in China and India were concluded in the second half of 2018 with $60 per tonne and $50 per tonne increases, respectively, reflecting tight market fundamentals and higher spot market prices that existed all year.

Market Outlook

Positive global agricultural developments and lower inventories in key import regions could support another record year of shipments.

Potash market fundamentals remain firm, supported by strong demand growth and tight availability. Canpotex and several other suppliers have all reported they are fully committed through early 2019. While we do expect that product availability from greenfield plants will increase during 2019, this is expected to be partially offset by production curtailments and permanent mine closures from other existing producers.

We continue to observe positive agricultural developments in the standard-grade markets, particularly in China, where there has been a continuous shift to more potassium-intensive crops like fruits and vegetables. While the fertilizer subsidy policy in India and weaker palm oil economics may pose some near-term risks on demand in these regions, the long-term agronomic need for potash is undeniable.

High nutrient removal in 2018 related to expected record crop yields, combined with potash prices remaining affordable relative to grower revenues, are expected to support continued strong consumption in North American and Latin America. Along with lower inventories in key import regions to begin the year, we anticipate world potash shipments between 67 million to 69 million tonnes in 2019.

Synthesized from hydrogen sources (primarily natural gas or coal), steam and air, ammonia (NH³) is a concentrated source of nitrogen and the basic feedstock for all upgraded nitrogen products.

Nitrogen is required by every living cell and is a fundamental building block of plant proteins that improve crop yield and quality. Nitrogen is also used in a variety of industrial products such as plastic resins, adhesives and emissions control.

Production of nitrogen is the most geographically diverse of the three primary nutrients due to the widespread availability of hydrogen sources. Ammonia is primarily consumed close to the regions in which it is produced due to the high cost of transportation, whereas urea and nitrogen solutions are more widely transported and traded. We compete with other producers in Canada, the US and a number of offshore suppliers.

In recent years, a significant amount of new capacity was built in locations with access to low-cost gas, which displaced higher-cost exports from regions such as China and Europe. The US remains the largest importer of nitrogen and a key driver of global trade despite a significant increase in domestic capacity and production over the past few years.

Natural gas can represent up to 60 percent to 80 percent of the cash cost of producing a tonne of ammonia, and a low-cost and reliable source of feedstock is therefore

imperative. Having reliable production assets located in key consuming regions is also advantageous as the risk and cost of transportation is significantly reduced.

Nutrien has a total of 7.1 million mt of ammonia capacity and the ability to produce and sell more than 11 million tonnes of total nitrogen products. Our asset base is highly flexible, allowing us to optimize product mix and profitability in response to changing market conditions. Our nitrogen plants in Canada and the US have access to low-cost natural gas and benefit from regional selling advantages. We also operate a large-scale nitrogen facility in Trinidad with gas costs indexed primarily to ammonia prices, providing for greater margin stability and access

to import markets. In 2018, we signed new long-term gas contracts with the Government of Trinidad.

Approximately half of our nitrogen sales are agricultural related and the remaining sold for industrial purposes. A portion of our industrial sales are linked to natural gas costs, reducing variability in margins. We are currently reviewing a number of brownfield growth opportunities across our Nitrogen system that could increase total capacity and our upgraded product capability.

2018 Market Conditions

Nitrogen prices were supported by limited new supply, production curtailments and higher feedstock prices.

Urea benchmark prices rose 20 to 25 percent in 2018 as export volumes from high-cost producing regions such as China and Europe declined significantly, more than offsetting new capacity additions that have come online over the past few years. Chinese urea exports were 2.4 million tonnes in 2018, down 2.3 million tonnes compared to 2017. Chinese urea production has been pressured by domestic environmental regulation—resulting in shutdowns—as well as higher energy feedstock costs. European nitrogen production costs also supported global prices as domestic natural gas prices increased by between 30 and 40 percent year-over-year.

Ammonia prices reached a two-year high supported by a balanced trade market. Growing ammonia requirements in key importing regions, such as China and Morocco, in addition to lower global export supply, offset the effect of lower import requirements in the US due to increased domestic production.

Approximately 70 percent of our nitrogen production is located in North America where natural gas prices remained subdued in 2018 relative to the rest of the world. In 2018, Canadian AECO benchmark gas prices were $1.19/MMBtu and US NYMEX gas prices were $3.09/MMBtu.

Market Outlook

Strong demand and limited supply additions expected to support prices.

We expect that limited urea capacity additions, combined with further closures, will support further tightening of the urea supply/demand balance in 2019. Chinese urea export availability is expected to remain constrained due to the impact of environmental regulations and its relatively high cost inputs, which supports the global floor price for nitrogen. Coal prices have remained relatively stable entering 2019 and Chinese production levels are in line with year ago levels. The US sanctions on Iran also place significant uncertainty around Iran’s urea export potential, which could tighten the global urea market and provide support to urea prices.

The ammonia market entered 2019 under pressure as energy prices have softened and buyers anticipate new supply, but the high-cost positions from European suppliers will continue to establish the floor.

Nitrogen demand is expected to increase by approximately 2 percent in 2019. We expect a two to four million acre increase in US corn and cotton acreage in 2019, which will support robust US nitrogen consumption. Furthermore, we expect the poor fall application season will result in a higher than normal proportion of nitrogen applications in the spring, supporting spring demand, particularly for urea and UAN.