Chinese potash buyers appear poised to win a hefty cut in prices this year, Raymond James said, even as Fitch Ratings cautioned of the lingering pressure on world values from "high" Chinese inventories.
Raymond James said that "after one of the most protracted (unnerving) potash negotiations on record" - which saw Indian buyers last week achieved a 32% drop to $227 a tonne in prices of the nutrient, on a CFR basis - "pricing clarity is slowly beginning to form".
The read-through for Chinese importers – which has the world's biggest, ahead of India's, are viewed as particularly important in setting world values – was a similar discount,
"Incremental price discovery should assist still-unresolved Chinese contract negotiations… which seem increasingly likely to land at about $210 a tonne," Vancouver-based Raymond James said.
That would represent a sharp drop on the $315 a tonne that Chinese buyers reportedly paid for potash last year.
However, the comments came as Fitch Ratings separately highlighted the drag on world potash values from Chinese inventories of the fertilizer which are expected to "remain high for the remainder of 2016, further decreasing imports and depressing global potash prices".
The ratings agency attributed the elevated Chinese potash stockpile, on which it did not put a figure, primarily to "weaker domestic demand, rising domestic output and aggressive imports over previous few years".
Chinese potash imports in 2014 soared by 33% to 8.0m tonnes, with a further 17% rise to 9.4m tonnes last year.
Meanwhile, domestic production last year rose by 8.6m tonnes to 9.5m tonnes, and is expected to rise further to meet a government target on 70% self-sufficiency in the nutrient, said Fitch, which pegged total Chinese demand at 15.8m tonnes last year.
The delay in Chinese importers reaching a deal with Canpotex, the North American potash export cartel, "reflects the downside risk of potash prices, China's high domestic inventory, and intense competition from suppliers in Russia and Israel", Fitch added.
According to Credit Suisse, potash prices have fallen some 21% so far in 2016 to $230 a tonne in South East Asia, and by 22% to $215 a tonne in Brazil, the lowest since the $200-a-tonne price seen in early 2007.
Raymond James added that the slide in corn prices - which plunged by 14% in the last two weeks of June, for Chicago's best-traded December contract – had also hurt prospects for fertilizer prices, cutting margin prospects for farmers, and thus their enthusiasm for spending on crop inputs.
"Corn prices have once again come under intense pressure," weighed by unexpectedly large US sowings and inventory data, besides reduced concerns over Midwest weather.
Another factor keeping the potash price outlook "muted" was pressure on values of fellow fertilizer urea, which "remain profoundly weak despite sharply higher gas prices in recent months".
"While maintenance programmes and production cuts are likely this summer, [the urea price] outlook remains bleak unless key markets like India and Brazil start purchasing in size again."
Urea is selling for $187 a tonne in the Black Sea, the lowest price in at least a decade, according to Credit Suisse data.
By Mike Verdin