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Potash: what’s next for one of the world’s major fertilisers
A long-awaited deal between China and potash producers provides
relief but the outlook is uncertain
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YESTERDAY by: Emiko Terazono
It was as if the potash industry breathed a collective sigh of relief. BPC, the trading arm of
Belaruskali, announcedearlier this month its long-awaited annual potash contract with a
consortium of Chinese buyers.
“Better late than never,” was the verdict of analysts at Scotiabank.
After BPC’s $219 a tonne agreement — a 30 per cent fall from 2015 — Israel Chemicals
(ICL) on Tuesday said that it had signed a contract with its Chinese customers, and other
large potash producers in Russia and North America are understood to be negotiating their
own contracts.
The annual agreementwith China, the world’s biggest potash user, provides a benchmark
for the whole world. Until the accord, industry executives and analysts had blamed this
year’s sluggish shipments on the lack of a contract.

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Potash, which regulates a plant’s water content and improves root strength, is mined from
deposits in countries including Canada, Russia and Belarus. It is one of the key crop
nutrients alongside nitrogen, made from natural gas or coal, and phosphates, which is also
mined.
Companies such as Canada’s PotashCorp, Russia’s Uralkali as well as Belaruskali are
among the world’s leading suppliers. BHP Billiton, the world’s largest miner by market
value, is also developing Jansen, a potash mine in Saskatchewan, Canada.
Thanks to the settlement, shares in the leading potash producers bounced. PotashCorp is
up 6 per cent since the start of the month, Mosaic up 9 per cent and Germany’s K+S adding
4 per cent.
However, the outlook for the potash market and its producers remains uncertain. Here are
five factors that will shape the outlook:
1. Increasing competition
The leading producers have all blamed rising competition in recent years for sluggish
prices. In the past, the large suppliers have not pursued market share by offering lower
prices. But a fight to sell increased volumes has broken out amid oversupply of potash as
well as tumbling crop prices.
Macquarie points to Chinese customs data which show that Uralkali has gained share this
year at the expense of ICL and Canpotex, the legal North American export cartel
comprising of PotashCorp, Mosaic and Agrium. The bank expects the fight for market
share to continue. “We see no alternative but for a growing market share battle between
major potash producers,” it says.
2. Shipments in 2016 and 2017
A late Chinese contract settlement historically has led to lower international shipments for
the year, but the pent-up demand usually means higher shipments 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,” says PotashCorp.

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3. Bottoming demand
On top of the delayed demand over the Chinese contract, industry executives and analysts
have noted a recovery in key markets including Brazil and the US.
Much will depend on currency movements. Uralkali says demand in the Brazilian and
Indian market “is getting better,” while analysts also expect US farmers to increase
fertiliser applications.
Crop prices also have a big impact. Grain and oilseed prices have fallen back after a rally in
the first part of the year, but the fertiliser price declines relative to crop prices provides
farmers with an incentive to apply more crop nutrients, according to analysis from
PotashCorp. “We believe this increased affordability will support strong fertiliser demand
and provide the opportunity for a fertiliser price recovery,” the company argues.

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4. Mixed supply outlook
While the China contract provides a floor for the market, questions about supply remain.
“Any price increase depends on further discipline by the producers,” says Oliver Hatfield at
consultants Integer.
This seems to be happening. Mosaic, for example, recently announced it would idle a mine
with capacity of about 2.6m tonnes until the end of the year. Nearly 7m tonnes of
production capacity could be closed between 2016 and 2020, says PotashCorp.
In the medium term, however, the market is braced for new production. K+S’s Legacy
minein Saskatchewan, is due to be commissioned this year, reaching 2m tonne capacity in
2017. EuroChem is planning to commission two projects in Russia with targeted capacity
of over 8m tonnes, with production aimed at 2017-18.

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5. Possible Belaruskali and Uralkali reunion
One leading factor behind tougher competition in the potash sector has been the break-up
in 2013of the original BPC, formed between Uralkali and Belaruskali. Uralkali quit the
trading arm after it accused Belaruskali of going behind its back in trading with China.
Over the past year, Uralkali’s large shareholders have reportedly approached Belaruskali
about reviving their export distribution operations. If it happens, it could be bullish for
potash prices. But Ben Isaacson, head of commodity research at Scotiabank, says there is
little upside for Belaruskali, which has now built up relationships in key potash markets.
The only real benefit “could be psychological tactics against buyers such as China and
India,” he says.
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