Rabobank urges potash importers to take broader view of market

06 March 2013 22:43  [Source: ICIS news]

HOUSTON (ICIS)—Forecasting challenges in the future of potash supply and demand, Dutch financial service provider Rabobank said on Wednesday believes that long-term success for importers of the crop nutrient will depend on balanced supply chains even though right now may be a buyers’ market.

In a report released on Wednesday, and authored by Rabobank’s Food & Agribusiness Research and Advisory group, the bank states that with the near-term potash market having become more favourable for buyers, the outlook for 2013 is that there are opportunities for the negotiation of considerable price discounts.

Yet it cautioned that while there may be a bearish market sentiment with the softness in pricing, difficulties in getting capacity expansion as well as new project developments, this will only raise the stakes for importers acquiring future reliable and cost-effective supplies of potash.

“Until recently, the potash market was mired in the midst of acute demand uncertainty and piling inventory levels across key consumption regions. The near-term outlook for the potash market has shifted to favour buyers, enabling importers such as India, China and Brazil to negotiate heavy discounts on short-term prices,” said Rakhi Sehrawat, Rabobank analyst.

“Despite this change, we urge importers not to be distracted by the current weakness in prices and to maintain focus on their long-term objective of securing access to reasonably priced potash.”

Sehrawat said that despite the perceived softness in demand, the supply aspect of the fertilizer product is still able to maintain strong margins. He states that in order to succeed in future negotiations and to effectively cap potash prices, the importer segment must have a more balanced supply mix. The report asserts this goal can be accomplished by a mix of investments into greenfield mines, long-term contract settlements with existing operations or the acquisition of a major potash operation.

“It has become extremely challenging for new players in the industry to finance further progress in their respective projects, making it clear that without proactive action by the major importers the industry structure is guaranteed to remain intact, turning in favour of consolidated suppliers once demand picks up,” Sehrawat said.

“It is therefore imperative for importers to take steps now to ensure more market-driven pricing that has a stronger alignment with the cost of production.”

He believes that if the market could eventually balance the needs of supply and the wants of demand, it will be very positive outcome for both sides of the potash industry.

By: Mark Milam
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