Global sulphate of potash supply squeeze set to continue

LONDON (ICIS)–The global sulphate of potash (SOP) fertilizer market is set to remain tight into the first quarter and likely longer still, according to market players on Thursday.

Availability will remain a key concern for SOP buyers around the globe in the short- to medium-term, as a number of legacy producers have cut production, or suffered outages that led to a backlog of orders.

Adding to the pressure, “demand will increase by around 2-2.5% next year,” said one producer.

“There’s gaps in supply all over, and no one there to fill them yet.”

Despite the ongoing shortage of supply, Q4 SOP prices for northwest Europe are stable at €465-480/tonne FOB (free onboard) – although a producer says an increase of up to €10/tonne FOB is likely for Q1 2019 offers.

At SOP producer Tessenderlo, lead times for deliveries range up to two months; pushing many buyers to make purchases now, in order to ensure delivery for spring planting.

Meanwhile, across mainland Europe, SOP stocks are described as “medium to low” – suggesting a lot of volume is yet to be purchased.

Further afield in Chile, legacy muriate of potash (MOP) and SOP fertilizer producer SQM freely admits to a focus on increased lithium production, over MOP and SOP, at its site in the Salar de Atacama.

The firm estimates total potash sales volumes will be around 900,000 tonnes for 2018, and could be even lower in 2019.

There was some positive news for SOP buyers, though, when German player K+S guaranteed MOP and SOP production at its three sites on the river Werra “up to and including December 23”, after suffering outages at its Hattorf and Wintershall sites in Q4.

Low water levels on the Werra forced the German MOP producer to search for an alternative way to dispose of saline wastewater produced by its mining operations.

That said, K+S acknowledged that “assuming a prolonged extreme drought, disposal-related stoppages in production are now only expected to continue over the holidays until January 1”.

In the long term, K+S says it should be able to increase on-site temporary storage capacity for saline wastewater by up to 400,000 m3 (cubic metres), to a total of up to 1m m3.

As a result of the outages – which have lumbered K+S with a €15m negative effect on earnings for Q4 this year – the producer’s SOP order book is long, and availability will likely remain limited in Q1, and possibly into Q2.

The question remains – “who will fill the gap”?

In time, perhaps Australia.

Indeed, the nation’s fledgling SOP fertilizer industry is celebrating, after the government announced a reduction to mining lease rents for brine-based mineral extraction firms.

The government of Western Australia Premier Mark McGowan revealed its plan to support the growth of the start-up industry, by slashing the rental rate of land from $18.70/hectare to $2.32/hectare for the first five years of a lease, and $4.64/hectare onwards.

The news is welcome relief for the five firms are competing to be first to market with SOP drawn from brine-laced waters below the dry lakebeds of the region: Reward Minerals, Kalium Lakes, Australian Potash, Salt Lake Potash, and Agrimin.

The relief may be short-lived, however, as the projects are still far from active production, and there is a considerable mountain to climb in terms of logistics challenges, securing sales agreements, and ramping up production in such an isolated location.

Then there’s a number of other projects, including Danakali’s SOP project in Eritrea, which – although promising – are similarly years from production.

As such, and with buyers’ hunger for SOP seemingly growing fast, the supply squeeze will only tighten for the foreseeable future.

Focus article by Andy Hemphill