Analysis: Potash supply nears pre-war levels, pushing producers to cut output
23/10/2024 11:20
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Potash prices have fallen sharply from 2022 highs
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Russia, Belarus increase shipments to Asia, South America
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Nutrien and K+S report earnings in November
By Tristan Veyet, Jesus Calero and Luca Fratangelo
Oct 23 (Reuters) - Global potash supply is returning to
levels seen before the invasion of Ukraine, as Russia and
Belarus sidestep Western sanctions by increasing shipments to
Asia and South America, pressuring producers to cut output and
avoid oversupply.
Potash production is expected to reach 73 million metric
tons this year, with Russian exports at 12-13 million tons and
those from Belarus at around 10 million tons, Julia Campbell,
head of the potash pricing service at commodity price agency
Argus, said.
Potash prices have started to normalise following a period
of volatility following Russia's invasion of Ukraine.
"Russian exports dropped sharply after the war in Ukraine
began due to financial and logistical challenges. But these
problems have since eased," Campbell said.
Increased exports from Canada, Jordan and Laos have also
boosted global supply and brought down prices, adding to the
fears of possible oversupply, with a slight improvement in
demand expected only in 2025.
During their half-year earnings reporting, major potash
producers such as Germany's K+S SDFGn.DE sounded optimistic
about growing demand and stabilizing prices.
However, analysts have since warned the abundant global
supply would put a cap on pricing, dampening the companies'
earnings prospects.
"I don't think there's likely to be any sort of premium
pricing or any real pricing benefit as a result of the global
supply shift and the global trade shift. We saw that mostly in
2022 and into 2023 when prices were still moderating,"
Morningstar analyst Seth Goldstein told Reuters.
As such, Canada's share of global potash trade increased
significantly in 2022, while those of Belarus and Russia
declined. Prices have since dropped below $300 a ton from a
mid-2022 peak of $1,000, on weak demand, data from Argus showed.
"We are likely nearing the operational cost of production,
which may force some companies to curb production," Rabobank
analyst Paul Joules said.
Canada's Nutrien NTR.TO , the world's top producer of the
mineral mainly used in fertilizers, suspended its ramp-up plans
for potash production in August, citing market conditions.
RISING SHIPMENTS, GROWING CONCERNS
Russian producers have increased shipments to China and
India via new rail routes since Russia exited the Black Sea
grain deal last year. This has boosted demand in Southeast Asia
and South America, Morningstar's Seth Goldstein said.
Belarusian exporters have shifted cargo from Baltic ports to
Russian ones and are offering potash at a discount via these new
routes bypassing sanctions, he added.
Meanwhile, Swiss-based Eurochem is expanding facilities at
its Usolskiy and Volgakaliy sites in Russia.
"The MOP (muriate of potash, or potassium chloride) sector
specifically, is already experiencing a period of very heavy
supply," said Humphrey Knight, an analyst at CRU London.
FARMING THE PRICE DROP
The fall in potash prices has improved affordability of some
grains and oilseeds, fertilizer consultant Delphine
Leconte-Demarsy from the U.N. Food and Agriculture Organization
said.
"In the U.S., potash remains more expensive than it was
before the price hike, but this is compensated by comparatively
higher crop prices," Leconte-Demarsy said.
But she added local farmers were affected differently
depending on logistical costs and exchange rates.
"In China, while potash is currently more affordable than
before the price hike for wheat and maize, depressed rice
markets curb potash use for this crop," she said.
In Brazil, a major exporter of agricultural products, potash
prices are back to 2019 levels, boosting its use for more highly
priced crops such as soybeans and maize.
Farmers will continue to reap the benefits as the tight
market is expected to keep potash prices below historical
averages, Rabobank's Joules said.
($1 = 0.9215 euros)
(Reporting by Tristan Veyet, Jesus Calero and Luca Fratangelo
in Gdansk, editing by Milla Nissi, Matt Scuffham and David
Evans)
((Tristan.Chabba@thomsonreuters.com;))