Global Potash Nears $300 Sendout Price

September 10, 2013 06:48 AM

kWhen Uralkali exited its joint venture with Belaruskali, competition between the two was expected to have pressured global sendout prices below $300.00. Currently, potash is sent from Uralkali to Brazil and Southeast Asian customers at $370/tonne FOB with China in at $325.

In a webcast earlier today, officials from Uralkali acknowledged the market's potential to press potash sendouts below $300.00/tonne, but in a statement from Moscow, Uralkali Head of Sales and Marketing Oleg Petrov said a price decline below $300 is unlikely, and if prices do fall that far, it would not be for long.

As a stand alone producer, Uralkali boasts the highest production capacity in the world along with the widest production margins. That positions the company as the industry price to beat. But what Petrov sees is an increase in demand at $300/ton and as buyers in Brazil, China and other Asian destinations look to capture the $300 pricetag, uncertainty regarding future potash plays will keep those buyers from getting too comfortable, and from gambling on a lower price ahead.

Europe has reported its potash coffers are nearly filled and Uralkali will have to live up to the expectation of suppressed pricing. But if Petrov has $300/tonne as his floor, importers will have to respect that level.

After 23% domestic use in Uralkali's home of Russia, 29% of first half 2013 potash production went to China, followed by 15% to Latin America, 12% to Europe and 11% to India. Exports to the United States accounted for just 5% of total first half production.

The bulk of the U.S. supply comes from our neighbors to the north, and Canadian producers have said they will not attempt to match Uralkali's bargain basement price. Having said that, the global price has been reset and despite PotashCorp's claim that Uralkali sendouts will not force Canadian prices to drop below levels profitable margins allow, the Canadian price will have to respond in some way.

China influenced the sendout price from Canada last year by holding out on summer tenders until Canpotex lowered the price from $475/tonne to $400. That hold out was buttressed by FSU suppliers -- then joint venture BPC -- which supplied China and India via rail.

Industry watchers have expected the bottom to fall out of the global potash market and the scare of it chased stock prices lower across the board for potash producers. But remember the overhang China left in place in Saskatchewan -- that inventory has since shrunk back to manageable levels. Meanwhile, Uralkali has put the pedal to the metal, now producing at the very top of its production capacity.

Perspective -- Fertilizer markets are ahead of schedule. Ammonia slowed its downward slide quicker than expected, Europe has almost filled its potash needs for the next round of applications and declines in the rupee have limited tenders from India. Potash may reach $300/tonne FOB, but when Uralkali's Petrov calls $300 as the floor, we respect that figure. Much like Saudi crude production, Uralkali has so much capacity above all other producers that curtailments and increases can be made as the market dictates. A move below $300/tonne would encourage Uralkali to taper production until supply meets profitable demand.

Current Midwest potash pricing has some downside room to give and we want to give the market some time to breathe before jumping in. I spoke about this with Chief Editor Chip Flory and he is anxious to make a play here, but I still believe this market wants to bleed. Wholesale potash in the Midwest is down 22.4% from the same time last year while retail prices have faded only 15.6% over the same period. Wholesale slides will outpace retail slides, but I'd like another 4% to come off the retail price before I'll call a floor.

If this makes you nervous -- book some potash where K sports a $400 handle. That would include Indiana -- at $472.20/st -- Wisconsin, South Dakota and Nebraska are all priced in the mid $490's. The current regional average reported to your Monitor is at $511.88 and I'm looking for that number reach $490/st. At that point, given present circumstances, we are all in.


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