Back in July I published an article detailing the potential bull case in the potash market. Key to the observation that prices were close to a floor was evidence of supply discipline.
In late 2017 Canadian producer K+S idled two of its mines for around two months while also running production at their most profitable mine (Bethune) around 400,000 tonnes lower than what the nameplate capacity would imply.
As a result the price of potash had stabilised at around $200 per tonne – a level it was at for the previous two years. Fast forward five months and there are further signals of upward price pressure.
The Belarusian Potash Company (the world’s largest potash producer, controlling 20% of the global market) recently signed a new contract with its Chinese buyers at a higher than expected price of $290 a tonne, up 25% from the previous year. The agreement with China, the world’s biggest potash user, provides a benchmark for the whole sector.
Longer term there is a risk that other suppliers will bring on extra output, neutralising the nascent recovery. For now at least this has been put on hold following the decision by EuroChem to delay its entry into the potash business.
The Russian controlled company initially expected to make 500,000-600,000 tonnes of potash this year from its new Usolskiy plant, near Russia’s Ural mountains. It now expects to produce about 300,000 tonnes. Meanwhile, the start up of EuroChem’s second plant, VolgaKaliy, that was previously scheduled for this year is now expected to take place in the first half of 2019.
The demand side of the equation has also been strong. Agricultural commodity prices have remained high relative to levels seen over the past couple years; in turn this has incentivised farmers to purchase more fertiliser.
Related article: A growth business: Potash market shows signs of life
Image courtesy of Belarusian Potash Company (BPC), the trading division of Belaruskali )