Last July, Uralkali quit the cartel it was forming with Belaruskali, and which controlled around 40% of the world’s trade in potash, saying it would seek to maximize its own volumes. It warned that prices could fall as much as 25 percent by the end of 2013 to less than $300 per tonne.
2 months later, China‘s sovereign wealth fund (CIC) acquired a 12.5 percent stake in Uralkali, following a pattern of China’s acquiring direct control of overseas mineral companies to keep price and supply stable. Uralkali’s decision to dismantle one of the world’s two big potash cartels pummeled shares of companies that produce potash and heralded a price war for the key crop nutrient.
By mid-november, it seemed that things were settling down between Moscow and Minsk but it was clear that Uralkali and Belaruskali were going their own ways.
The average potash price per tonne fob Vancouver, which was still $459 in 2012 – after reaching almost $900 in 2009 – dropped to an average of $379 last year. The conflict between the two CIS producers – Russia‘s Uralkali and Belarus‘ Belaruskali – and the volumes race which ensued accelerated the fall by flooding the market.
The average price for 2014 is expected to hover around $300/ton (though mostly on the higher end of that plateau considering that both the Canpotex and former Belarusian Potash Company partners signed contracts with China and India at above $300). The potash market is expected to remain in substantial surplus over the next five years according to Australian bank Macquarie, which predicts Canadian producers will increase production from the 15.88 million tons of 2013 to 17.42 tons in 2014. Russia and Belarus should also increase their supply in 2014.
Agriculture is the driving force behind potash demand and its consumption is linked to the needs of agriculture and varies with changes in agricultural prices. Potash helps increase crop yields, improve plant quality, reduce water needs and accelerate their growth. Lower agricultural commodity prices tend to reduce fertilizer demand; not surprisingly, demand or use of potash increases when its price drops.
This period of ‘cheap potash’ will serve to get more farmers around the world using potash; the results will then convince them to continue using potash even after prices inevitably rise again. China, Brazil and the United States (on average using some 10 million tons each) use more than half of the 62 million tons of potash that Macquarie expects will be consumed in 2018. While, it makes the biggest ‘splash’ in determining price, China is only the third largest potash importer (6.1 Mt in 2014, 6.9 Mt in 2018).
Holland’s Rabobank expects bearish tones to continue in the third quarter. There is not much good news in the Fertilizer Quarterly Q2 2014 except for potash: the bank, which has a worldwide business in agribusiness finance, says that, “after the collapse of potash prices, the first signs of a slow recovery are on the horizon”.
“Now that Uralkali’s change in strategy has finally established a new floor price, suppliers can focus on strategies to increase global prices,” the report says. It will be a challenging task as the global market still faces over-supply. That said, Rabobank believes it is unlikely potash prices will increase significantly in the short term. Brazil is likely resist efforts to raise prices to $360/tonne and China is unlikely to be willing to pay more in the second half of 2014 when India is paying $322 through to March 2015.