An Uneventful End to the Potash Panic

02:33PM Jan 30, 2014
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A conference call today with PotashCorp CEO Bill Doyle and others suggested that Chinese potash demand has been largely met with domestic K production, but that domestic supplies are nearly 'tapped out'. That leads PotashCorp to expect China to import as much as 75% of the K consumed there within the next few years.

Indian demand is expected to climb as well during the same period, but that will depend on where the current fertilizer subsidy policy lands under new national leadership. While the current subsidy policy favors urea over P&K in very lopsided fashion, agronomics require a balanced nutrient profile, and India will have to make up for lost time on P&K at some point in the coming years.

With declining Chinese potash production capacity, and the potential for an agronomic revival looming for India under new leadership, demand for potash is expected by PotashCorp to increase starting in the next few years. In the short-term, however, a 1 million ton inventory overhang has slowed production to just above 80%. That has helped PotashCorp minimize market vulnerability and has set a floor in this unstable market.

PotashCorp opted not to follow Uralkali's volume-over-price strategy at the BPC breakup, instead, choosing to rely on improved production margins not only in the potash segment, but also in nitrogen and phosphate production, which have buoyed what could have been a dismal year. All things considered, CEO Doyle feels like the dust is settling for global potash and notes gratefully, "we still have a reasonable price from which we can recover," suggesting a quiet, even uneventful end to the potash panic of 2013.

Look for settling dust to limit volatility in potash and for nitrogen and phosphate to buttress PotashCorp until Indian and Chinese demand pick up. Even when that happens, given operating rates in the low 80's at present, the increased demand will be satisfied by what is now spare production capacity.