Clear price direction for global potash as China contract settles

LONDON (ICIS)–With the settlement this week of the long-term Chinese muriate of potash (MOP) supply contract at a $60/tonne increase, the global MOP market has been given clear price direction for the year ahead.

Producers now face a balancing act to supply customers in the two key importing nations, while also meeting demand for fresh deliveries in southeast Asia, Europe, Brazil, and further afield.

On Monday, Belarus Potash Company (BPC) concluded a long-term potash supply contract with its Chinese buyers at $290/tonne CFR (cost and freight) – a $60/tonne increase over the 2017-2018 contract.

The contract will run from October 2018 to June 2019, and was agreed with a consortium of Chinese buyers, including Sinochem and CNOOC.

The increase is $10/tonne above the hike BPC agreed recently with its Indian customers.

BPC was able to negotiate a larger increase with its Chinese customers as, unlike India, China typically holds a larger reserve of MOP, which allowed buyers to extend negotiations this year in an attempt to secure an agreeable price.

This approach has apparently backfired, however, with Indian buyers stepping up to secure the lesser increase – and getting a head-start on deliveries.

BPC described the Chinese contract negotiations as “challenging and prolonged”.

With both the China and India contracts now settled at $290/tonne CFR, concerns are growing for availability in other regions.

In southeast Asia, a lack of fresh MOP arrivals is already restricting business – although producers’ local agents are increasing offers for almost every enquiry.

This is leveraging buyers’ fears of forthcoming increases, in the wake of the China settlement.

One European major was considering offers at $320/tonne CFR for standard-grade MOP to Indonesia in Q4 – well above the current $285-305/tonne CFR range for the region.

BPC is also believed to have has sold small standard-grade cargoes to Korea, the Philippines, and Japan at $310/tonne CFR for November loading.

Meanwhile, European granular MOP pricing is also ticking up, as tight supply – exacerbated by production outages at K+S’ plants on the Werra river – is met by steady demand.

In France, granular material was on offer at €285-290/tonne FCA (free carrier), while Italian buyers are receiving offers from Israel Chemicals’ Dead Sea Works at €285/tonne CFR Ravenna.

This tightness has led to an increase in the benchmark range for northwest Europe this week – pushing up to €285-290/tonne CIF – and this firm price pressure is unlikely to let up as MOP majors consider how to best supply the newly-finalised China and India contracts.

It is a similar story in Brazil, where tightness is continuing to define trading.

Granular MOP is changing hands with regularity at $335-340/tonne CFR, although some buyers – desperate for fresh arrivals to support the upcoming planting season – are willing to pay up to $350/tonne CFR for smaller cargos.

Focus article by Andy Hemphill