MOP market heats up as India settles potash deal

28 August 2018 11:31 Source:ICIS News

LONDON (ICIS)--The global muriate of potash (MOP) market is bracing for a flurry of trading and price fluctuations after Indian buyers finalised negotiations for a crucial long-term import contract at a $50/tonne increase.

The settlement, which puts the September 2018-June 2019 import contract at $290/tonne CFR (cost and freight) India, was disclosed on 25 August by Belarusian Potash Company (BPC), one of the seven global majors which dominate the industry.

India's MOP supplies are entirely imported, to support its vast agricultural industry.

BPC’s rival producers, including Russia’s Uralkali, Jordan’s Arab Potash Company (APC), and Germany’s K+S, will likely follow BPC’s initial contract price.

The Belarusian producer described the contract price agreed with Indian fertilizers major Indian Potash Limited (IPL) as “fair and [reflecting] the current market conditions and actual perspectives”.

BPC will supply potash to IPL at $290/tonne CFR, with 180 days’ credit. Under the previous agreement between the two companies, potash was supplied at $240/tonne CFR.

Pressure has been building on India to settle a new contract for months, as port stocks dwindled. Last week, MOP stocks stood at around 330,000 tonnes – a 127,000-tonne decline from the week before.

Even after the conclusion of the contract, it will take one month for shipments to arrive at India’s ports, and then one to one-and-a-half months to reach inland warehouses.

This, in turn, will put pressure on Indian distributors to supply farmers in time for planting.

As such, it is easy to see why BPC described the talks as “challenging and lengthy”.

The settlement also looks set to influence the MOP supply dynamic around the world, owing to India’s immense appetite for the crop nutrient.

“[The] market will be very tight in the coming months if they need to bring all to India. The industry will now fully focus on [getting] product to India. This will have consequences,” a source at one producer said.

Added to this concern is the unresolved question of China, the other key MOP importing nation and which is yet to settle its own long-term import contract.

The last 2017-2018 contract settled at $230/tonne CFR and, like India, an increase for the next contract is widely expected.

Sources have quoted potential increases that could be anywhere between $30/tonne and $70/tonne.

Unlike India, China has a larger reserve of MOP, which has allowed its buyers to drag out negotiations in an attempt to secure an agreeable price.

It’s arguable that this strategy has backfired, however, as India’s $290/tonne CFR settlement sets at least a plus-$50/tonne benchmark for any potential increase, backing China’s buyers into a corner.

“I don’t see China [buyers] getting less than $280/tonne,” the producer added.

The potential of a new contract in China has also pushed producers’ agents in some regions to secure as much product as possible, before China and India consume the lion’s share of supply for some time.

In Thailand, for example, importers are concerned by the prospect of an increase in the long-term China import contract, which will have a knock-on effect on pricing and availability across southeast Asia.

The local agent of one European producer said it plans to send two vessels to Thailand in October and November, while two will also head to Vietnam, two to Malaysia and Indonesia, and one to Australia, all in an effort to secure availability for the fourth quarter in advance of a new China contract.

Following news of the Indian settlement, domestic Chinese MOP prices are already rising as the market braces for what seems to be a now-inevitable increase.

Pictured: Rice fields in the Kullu Valley in northern India 
Source: Ronnie Israel/SpecialistStock/REX/Shutterstock

Focus article by Andy Hemphill

By Andy Hemphill