Linked In
News In
Linked In

You are viewing your 1 complimentary article.

Register now to receive full access.

Already registered?

Login | Join us now

Delays to China potash-buying deal bode well for price recovery

Twitter Linkedin eCard

PotashCorp found virtue for potash producers in delays by Chinese buyers in agreeing a fresh supply contract, saying that history suggested that the current impasse would herald a rise in demand ahead.

This year has been marked by particularly late finalisation of annual deals between potash producers, such as Canada-based PotashCorp and Russia's Uralkali, and top importers India and China.

And what deals have been agreed have been set at prices far lower than a year ago.

Belarusian Potash Company, the export marketing group for Belarus-based Belaruskali, only last week agreed a supply deal with China priced at $219 a tonne, down $96 a tonne year on year – three weeks after agreeing to sell to India at $227 a tonne.

(China, as the world's biggest potash importer, has historically received the lowest prices.)

Groups such as PotashCorp and Uralkali have yet to agree terms at all with China, in annual deal rounds typically finalised in the first quarter of the year.

'Weaker demand environment'

The impasse comes against a background of, according to Fitch Ratings, large Chinese stocks, which have curtailed the country's appetite for an immediate accord, and undermined the enthusiasm of other purchasers, who view Chinese supply deals as benchmarks for pricing.

"The absence of new contracts in China, limited demand from India and cautious buying patterns in spot markets reduced global potash deliveries in the first half of 2016," PotashCorp acknowledged.

"This weaker demand environment, combined with increased competitive pressures, pushed potash prices lower in most spot markets."

Spot potash prices have fallen by 22% in the key Brazilian market this year alone to $215 a tonne, according to Credit Suisse, the weakest in nearly a decade.

'Supportive price environment'

But this downturn could herald better market conditions ahead, PotashCorp said, flagging lessons from previous years of delayed Chinese settlements.

Given the importance of Chinese contracts as global benchmarks, "it is not surprising that world potash demand has been impacted in years with a late Chinese contract settlement," the group said.

"However, this has tended to set the stage for increased demand in the following year.

"We expect the situation will be no different with a delayed contract impacting shipments in the first half of 2016, setting up the potential for a strong demand recovery in the coming year.

"We believe the combination of supportive crop prices, an opportunity for improved demand and the impact of recent production outages could provide a more supportive price environment in the second half of 2016."

Supply to ease

PotashCorp also saw an upside to prices in recent supply disruptions, with US-headquartered supplier Mosaic mothballing a Canadian facility.

"Between 2016-20, approximately 7m tonnes of potash capacity is expected to be eliminated due to mine depletion and economic conditions," PotashCorp said.

"We expect the combination of healthy demand growth and announced mine closures will offset the development of new capacity and support a relatively balanced market."


Twitter Linkedin eCard
Related Stories

Will protein prices fight back against fat in dairy markets?

Prices of fats remain elevated against protein values in dairy - at a time when the opposite is true in markets for oilseed products

World phosphate, potash shipments to grow in 2018, helped by Chinese needs

Mosaic forecasts further demand expansion, as it heralds a "transformational year" for its own fortunes, after a 2017 marred by a one-time tax charge

Deere lifts sales hopes - even as it unveils biggest loss in 25 years

The maker of John Deere tractors flags "strengthening" market conditions, but swallows a huge writedown prompted by US tax retorms

Plant Impact agrees takeover by Croda, after failure of Bayer contract

The crop enhancement group, floored by the failure of a supply deal with Bayer, agrees a takeover by a maker of chemicals from anti-wrinkle creams to floor coatings
Home | About | RSS | Commodities | Companies | Markets | Legal disclaimer | Privacy policy | Contact

Our Brands: Comtell | Feedinfo | FGInsight

© 2017 and Agrimoney are trademarks of Agrimoney Ltd
Agrimoney is part of AgriBriefing Ltd
Agrimoney Ltd is registered in England & Wales. Registered number: 09239069