Potash market shocked by Chinese MOP contract's $70/tonne drop

Author: Andy Hemphill

2020/05/01

LONDON (ICIS)--The global muriate of potash (MOP) fertilizer market was left stunned this week by news that Belarus Potash Company (BPC) was first to settle a 2020 long-term supply contract with a consortium of Chinese buyers, at a $70/tonne decrease from the 2018-2019 benchmark.

Although the precise tonnage BPC is to supply under the agreement is as-yet undefined, the $70/tonne decrease to $220/tonne CFR (cost & freight) China caught many players by surprise.

In recent weeks, potential decreases of $30-50/tonne were heard on the table – and are now proven to be conservative.

That said, the news did leave some players viewing the lower price point as a reasonable compromise amid a tumultuous market, and one producers can build on if demand improves throughout the year.

In a press release on Thursday, BPC said it reached the agreement with Chinese buyers Sinochem, China National Agricultural Means of Production Group (CNAMPGC), and China National Offshore Oil Corporation (CNOOC).

In the case of long-term contract talks with key importers China and India, once one of the largest MOP producers announces an agreement with its own buyers, other producers traditionally settle at a similar price point in their own, separate negotiations.

In its announcement, BPC said: “Quarantine measures made both governments and people realise more clearly how important [the] agricultural sector is for normal life. Food security is once again at the top of the list, and regularity of food production and related distribution chains must be prioritised.”

Describing the agreement as “a vital step”, BPC added: “The price of the new China contract builds a firm foundation for the stabilisation, recovery and further incremental development of the global potash market.”

Another source at a rival European fertilizer major agreed, adding “this milestone should reactivate the market”.

This settlement will act as a bellwether for the remainder of the year’s potash trade, with repercussions into 2021 and beyond.

Many smaller buyers in regions including southeast Asia have withdrawn from the market in recent weeks, awaiting news from China.

The new China benchmark at $220/tonne CFR may put some bearish pressure on offers into southeast Asia - although it may take some time before talks begin in earnest.

In Malaysia, standard-grade MOP was heard on offer at $250-255/tonne CFR, with Indonesia priced $5-10/tonne above this.

Standard-grade MOP in Vietnam and Thailand was heard at $260-265/tonne CFR.

For granular material, Malaysian offers are around $265-270/tonne CFR, with Indonesia around $5-10/tonne higher.

Demand is notably stronger in Vietnam and Thailand, where granular MOP was priced at $275-280/tonne CFR.

Finally, in the other key bellwether MOP import market – India – there is little news from similar ongoing long-term import contract talks; although the settlement of the Chinese benchmark may soon spur movement.

Market speculation indicates Indian buyers may have to pay slightly more than China’s new $220/tonne CFR China benchmark for the second half of their 2020-2021 requirements.

Offers were previously heard priced at a benchmark of $280/tonne CFR India, which was settled for a six-month contract late last year, and expired in March.