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SQM sees weaker potash prices in 2016

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Potash prices will be lower in 2016, despite a slight uptick in demand, Chilean miner SQM said.

SQM said it was expecting "slight demand growth in 2016," helping the company's sales volumes to increase, from the low level seen last year.

Stronger demand

World potash demand took a hit in 2015 as key buyers, such as Brazil, reduced imports.

South American and Asian potash demand was under pressure from currency weakness, which made imports less affordable, as well as a scarcity of farm credit which meant farmers, in Brazil especially, could not find the cash to make input purchases.

SQM said that sales "could increase about 10% in 2016, returning to levels similar to those seen during 2014".

Falling prices

But despite the higher demand, prices were expected to be weaker over the year.

"In the final months of 2015, we saw prices of granular muriate of potash in Brazil of approximately US$280," said SQM.

"We expect average prices in this business line in 2016 to be lower than average prices in 2015."

Lower prices ahead?

This week Credit Suisse reported that the cost of imported granular potash in Brazil was down 4% so far this year, at $265 a tonne, following a 26% drop over 2015.

And broker Raymond James reported prices in the South East Asian market were down 2% since the start of the year, at $285 a tonne.

Raymond James noted that "several traders are reportedly expecting prices to hit $250 a tonne".

Buying cartel

SQM said "more visibility" would appear in the potash market, after the conclusion of annual negotiations between China and the world's key potash suppliers.

This round of negotiations, between the Chinese buying cartel Sinofert, and the North American exporting cartel PotashCorp, as well as the Uralkali and Belaruskali companies, is used to price supply contracts globally.

SQM expects demand for potassium nitrate to grow in 2016, helping boost sales.

Potassium nitrate, which contains nitrogen as well as potassium, two of the three key plant nutrients, is used in speciality fertilizer products.

But average prices are expected to be lower year-on-year, after a "significant decrease" in the last three months of 2015.

Falling margins

SQM is expecting gross margins for the last three months of 2015 to fall, compared the previous three month period.

On Thursday analysts forecast earnings per share for the quarter at $0.28. The company will release its fourth quarter results on March 1.

By Agrimoney.com

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