Uncertainty prevails over the price of Potash, likely to delcine further

General lack of demand has been impacting potash prices for sometime now

ICIS, world’s largest market information provider in the petrochemical, energy and fertilizerIC has observed continued uncertainty in the prices of potash amongst market participants post the arrest of the CEO of Uralkali - Vladislav Baumgertner in Belarus on 26th August.  

 

ICIS  reviewed  the recent developments leading to the arrest of the CEO of Uralkali on charges of abuse of power. ICIS views this as negative news for the potash market, which has been under pressure because of the general lack of demand since Uralkali decided to discontinue its offshore potash sales via Belarusian Potash Company (BPC).

 

Potash prices have tumbled by 15-20 per cent  in some markets such as South East Asia and Latin America since the break up of the cartel. Producers are seen preparing themselves for a few tough years ahead, with high-cost producers likely to see a significant hit to their bottom lines due to prices softening. Germany’s K+S is believed to be planning a cost-cutting programme because of uncertainty in the market. 

 

The silver lining on the production front is the commitment shown by large companies such as BHP Billiton which has announced plans of investing $2.6bn into the Jansen potash project. The mine would be the world’s largest having a capacity of around 10 million  tonnes/year once fully operational, with an estimated lifecycle of more than 50 years.

 

With news rife of Belaruskali agreeing to lower prices for shipments post September, the suspension of operations at two of its four potash mines has sent mixed signals to market participants who see it as a move aimed at lowering supply and aiding prices. Buyers across the Americas, Europe and other parts of Asia are thus waiting on the sidelines for clarity to emerge on the current and future contract prices.

 

ICIS has noted the impact of the depreciation of local currencies against the US dollar on demand for potash from countries in South East Asia. Commenting on the Indian market, Deepika Thapliyal, Analyst, ICIS said, The Indian rupee having depreciated by nearly 20% has adversely affected demand from Indian importers on account of erosion seen in purchasing power. There have been no new shipments heard over the past month. Though India has already signed contracts for the current fiscal year ending March 2014, buyers have begun renegotiating contracts and are asking for a $67-77/tonne discount to $350-360/tonne CFR on the current price of $427/tonne CFR. What’s interesting is that in some markets in South East Asia, such as Indonesia, local prices of standard grade muriate of potash (MOP) are$25-30/tonne lower than the imported prices, partly helped by the foreign exchange differential. But even at these levels, there is little or no demand.

 

China, one of the largest importers of MOP, has yet to sign import contracts for the second half of this year. The arrest of Uralkali’s CEO has led to Chinese importers delaying the signing of fresh contracts and adopting a 'wait and watch' approach until the situation stabilises. 

 

With Uralkali pursuing a volume-over-price strategy and ramping up its production to 100% capacity from 70% previously, a further decrease in potash prices is imminent. This is good news for farmers and may even spur a pick-up in demand over time, but the likelihood of this would be gradual. What market participants are sure of, however, is that the dynamics of the sector has changed and is characterised by a slow transition towards becoming a free market, the report concluded.