OUTLOOK ’19: Global potash supply squeeze intensifies, Europe production capacity uncertain

Andy Hemphill

07-Jan-2019

LONDON (ICIS)–Muriate of potash (MOP) fertilizer supply will remain tight around the world in 2019, amid increasing demand, production discipline, outages, and the delayed ramp-up of new capacity.

This tightness – which emerged amid a year characterised by bullish offers – indicates MOP and sulphate of potash (SOP) prices will continue their upward trajectory in 2019, albeit in $5-10/tonne increments, as opposed to big jumps.

In southeast Asia, weaker palm oil export prices gave importers a moment’s pause in the fourth quarter of 2018.

Buyers instead forecast demand requirements for the first quarter of 2019, and approached producers in an attempt to secure cargoes early.

Many were turned away, as producers were unwilling to commit that far ahead, owing to the aforementioned tight supply.

In fact, the only comforting news for MOP-strapped southeast Asian buyers was talk of slowing enquiries in Brazil in the tail-end of 2018.

Producers had been taking advantage of an astonishing run of strong Brazilian demand since mid-year, largely thanks to the US/China trade war, which made Brazilian soya bean exports very attractive, over the US’ crop.

Despite the slowing demand, granular MOP offers to Brazil remain steady into first-quarter 2019, suggesting additional bullish offers may lie ahead later in the year.

Meanwhile, in Europe, tight supply is similarly a key issue for buyers of both granular MOP and SOP.

Much discussion revolves around Russian MOP major Uralkali’s production capacity. The company has continually refuted talk of ongoing production constraints at its Soliamsk-2 mine in Russia as “absolutely not true”.

Uralkali has officially confirmed it will divert some potash sales away from China and India, due to what it perceives as low benchmark prices – indeed, the producer has only signed a contract to sell “minor volumes” to China at the $290/tonne CFR (cost and freight) benchmark, and none at all to India.

The absence of Uralkali’s volumes, combined with reduced production at rival MOP majors, has left India “short 1m tonnes” – which could in turn draw volumes away from other destinations in 2019.

Alternatively, the deficit may lead to a degree of “demand destruction”, as Indian MOP importers turn to alternatives, such as urea.

Another topic of debate for 2019 is the future of Chilean producer SQM, which freely admits to “our focus on efforts in the Salar de Atacama to increase lithium production”, over MOP and SOP.

The Chilean lithium major’s combined MOP/SOP sales volumes declined by 39% in Q3 2018 to 249,000 tonnes, while the sector’s sales revenue fell 29% to $80m in the same period.

Indeed, with SQM’s SOP production in decline, and Germany’s K+S still racing to recover from outages in Q4 2018, both the European and wider global SOP market will see tightness and bullish pricing in 2019, much like its far larger MOP sister market.

“[SOP] 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.”

These “gaps” are a similar story across both MOP and SOP capacity, as the likes of start-ups Danakali, Sirius Minerals, and Emmerson, plus Australia’s five SOP potentials, are all some way off first production.

Indeed, only global fertilizer player EuroChem has shown overt progress on its MOP production; albeit at a far slower pace than many predicted for 2018.

EuroChem’s potential capacity tops 8.3m tonnes of potash – but despite entering the market in Q2 2018, the major’s Russian plants have ramped up far slower than expected, due to technical issues.

Production is expected to increase in 2019, but much of the volumes will be consumed by EuroChem’s internal nitrogen, phosphate, potassium (NPK) fertilizer lines.

However you look at it, 2019 will be a tough year for buyers, as tight supply continues to put upward pressure on prices, and producers target markets which offer the best possible returns.

Focus article by Andy Hemphill

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