Potash producers hopeful of recovery

By Yoke Wong
Published: Thursday, 04 August 2016

A number of producers believe potash prices have bottomed out and that fertiliser demand is expected to recover following key supply contracts in China and India, but capacity will remain capped amid oversupply and weaker y-o-y consumption.

field of soy_potash_agriminerals_illinois_SOURCE CARLFBAGGE 
Fields of soy: A growing middle class and an increased appetite for meat is expected to fuel demand for animal feed and fertiliser as a result (Source: carlfbgge via Flickr)

Potash demand is widely anticipated by producers to improve for the remainder of 2016 following the settlements of key supply contracts in China and India, which provided clarity to the depressed fertiliser market, the main end use for the mineral.

Growth in the world's population, expansion of the middle class in a number of developing countries and as a result, a shift towards more meat-heavy diets, are all regularly cited factors for an expected increase in fertiliser consumption.

A number of deals were concluded in the past month. Potash producer Belarusian Potash Co. (BPC) first announced at the end of June that it would be supplying potash to India’s Indian Potash Ltd (IPL) at $227/tonne on a CFR India basis for 2016/2017. The agreed price was a 32% decline on 2015 supply contracts, which were signed at $332/tonne.

Two weeks later, deals at the same price level were struck by Tel-Aviv-headquartered Israel Chemicals Ltd (ICL) and German fertiliser producer K+S with the Indian buyer. 

In July, Chinese buyers also finalised agreements with BPC at $219/tonne on a CFR basis for the rest of 2016, compared with $315/tonne last year. This was followed by ICL’s announcement that it too had concluded a 700,000 tonne supply contract with China.

China is the biggest potash buyer in the world and Chinese potash agreements are an important indicator of global fertiliser demand. Chinese contracts are traditionally signed earlier in the year, but this year contracting was delayed due to industry destocking during the first quarter.

The latest spate of supply agreements has provided direction in the uncertain fertiliser market, which has seen long-term supply contract prices fall by about 30% year-on-year (y-o-y).

Many producers believe that potash prices have bottomed out and demand will recover during the second half of 2016, which would support agrimineral prices. At the same time, oversupply will continue to put pressure on prices and a number of producers have plans to reduce operational capacity to optimise costs.

Leading fertiliser producer The Mosaic Co. believes that demand from the agricultural sector in Brazil is expected to drive near-record fertiliser consumption in 2016 and 2017. Brazil is the third-largest potash market behind China and the US.

Weak Q2 performances

Amid weak global fertiliser demand and oversupply, several producers saw their profits wiped out and earnings plunged into losses. US-based potash and phosphate producer Mosaic said on 2 August that low potash and phosphate prices have pulled their second quarter earnings into a loss.

US-based Intrepid Potash Inc. reported bigger losses while North American fertiliser producer Potash Corp. of Saskatchewan Inc (PotashCorp) saw profits crash during the same period.

Production cap

In order to stem further losses and optimise costs, producers have cut capacity to reduce output. In July, Intrepid Potash idled its West facility in New Mexico, US, one of its core production plants, and Mosaic mothballed its Colonsay potash mine in Saskatchewan, Canada for the rest of the year.

Amid lower demand, new infrastructure investments for fertiliser exports were also halted earlier in June. Canadian potash exporter and logistics company Canpotex International PTE Ltd announced that it will scrap plans for a new fertiliser export terminal at the Port of Prince Rupert in British Columbia, Canada.

Canpotex is a joint venture (JV) between PotashCorp, Mosaic and Agrium, and has decided not to proceed with the Prince Rupert project on cost-saving grounds. The availability of up to 2.5m tonnes of storage and loading capacity at the Port of Saint John in New Brunswick also influenced the company's decision.

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