Potash prices in China will in 2014 prove their least
expensive, compared with corn values, since at least the 1990s, PotashCorp
said, raising hopes over a fresh import deal seen as critical for
An affordability index for potash, based on comparing values
of the nutrient with corn prices, will reach 1.2 for China next year, up from
an average of about 0.9 for 2013, and the highest level on records going back
to 2000, the group said.
"Prices for major field crops, such as corn, have increased
substantially as farmers have been challenged to keep pace with demand growth,"
said Canada-based PotashCorp, the top potash producer by capacity.
"With potash prices moving lower over the past year, the
ratio of corn prices to potash prices is projected to be at its most favourable
level in more than a decade.
"We expect this will be one factor that can have a positive
impact on potash consumption."
Potash consumption by China, the top importing country, is
also being underpinned by the growing fruit and vegetable industry, which
actually uses, at 40% of overall demand, a little more of the nutrient than the
"Production of all of China's major crops has increased
tremendously over the last two decades, but particularly fruits and vegetables,
which have more than tripled," PotashCorp said.
"Production of these high-quality crops requires significant
application of nutrients, particularly potash, which helps improve colour,
taste and texture."
However, the growing size of farms, as family plots are
consolidated into larger enterprises, bodes well for consumption by cereals
farmers too, whose corn yields are about half those of the US, encouraging
mechanisation and efficient fertilizer applications.
By the end of last year, nearly 18m hectares of land rights had
been transferred, equivalent to more than 20% of the total family-contracted
area, under a programme started in 2008.
The comments come as investors are early anticipating the
next Chinese import contract for potash, which comes against a backdrop of
turmoil in the market after the break-up in July of the Belarusian Potash
Company cartel, which controlled more than 40% of world trade.
The move spurred a sharp drop in potash prices, which has
spread to other fertilizer markets too, as buyers backed-off in expectation of
still lower values, and provoked a series of cutbacks and profit warnings at
producers including PotashCorp.
Supply contracts for China, which as the biggest importer
gains favourable prices, typically set a floor which is followed by other
"A China contract (in early 2014?) could help bring some
stability as it would allow for some price discovery," said John Chu at broker
Wayne Brownlee, the PotashCorp finance director, said last
week that Chinese, and Indian, purchasers were likely to be "opportunistic" in acquiring
potash "and try and sort of find the bottom of the marketplace - being good
buyers that they are".
One scenario was to "see the Chinese walking a price early
in the first quarter, and that will provide a floor price which will encourage
probably the Indians to get in and lock in some tonnage".
However, he acknowledged the importance of the former Soviet
Union producers in the market, and the prospects – or not – of a repair of
relations between Belaruskali and Uralkali, former partners in the Belarusian
Potash Company cartel.