For first nine months of 2011 the potash market was characterised by strong demand and rising prices. However, following the global economic deceleration and tepid year-end crop fundamentals, potash stock levels jumped to two year highs, leading several producers – including PotashCorp, Mosaic and Uralkali – to announce significant production curtailments.
Potash customers purchased cautiously in early 2012 and first quarter volumes were lower year-on-year, as the market held its breath in the run-up to major contract negotiations with Chinese buyers. PotashCorp’s potash sales volumes were down by 1.6 million tonnes year-on-year to 1.2 million tonnes in Q1 2012. Similarly, Mosaic’s latest quarterly performance revealed a weaker market environment. The chart below shows how falling sales volumes squeezed profitability of the company’s potash segment in the quarter ending 29 February 2012.
By the end of March, potash contracts with Chinese buyers were finalised. Potash marketing group Canpotex signed a contract with Sinofert Holdings in March 2012, to supply 500,000 tonnes of potash in Q2 2012 at a price in line with year-earlier levels of US$470 per tonne. Furthermore, Belarusian Potash Company (BPC) announced it had agreed a contract with Chinese importers, Sinochem and CNAMPGC, for the same period at US$470 per tonne delivered. Israel Chemicals and Arab Potash Company also signed potash supply agreements of 550,000 tonnes and 250,000 tonnes respectively at US$470 per tonne.
Potash demand is expected to be upbeat in Q2 2012. Macroeconomic risks are decreasing, the potash stock balance is gradually declining and agricultural prices have stabilised since December. The recent Chinese contract settlements – along with anticipated strong spring demand requirements in the Northern Hemisphere – are expected to drive potash volume recovery and price stabilisation. Potash producers have ramped up production to meet demand and shipments are anticipated to gather speed as the year progresses. PotashCorp estimates that global potash demand will rise by up to 5% year-on-year to 55-58 million tonnes in 2012, from an estimated 55 million tonnes in 2011.
On the supply side, brownfield expansions at PotashCorp, Mosaic and Uralkali are continuing on schedule for completion over the next five years. Greenfield projects are also advancing – K+S announced in March that 45 employees were working in Saskatchewan, Canada on the construction of the Legacy project. Furthermore, junior miners, Western Potash (Sakatchewan, Canada), Allana Potash (Ethiopia) and Verde Potash (Brazil) expect to complete feasibility studies for their projects by the end of the year.
Understand how potash profits are likely to develop in the medium term
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