In 2012, the potash market suffered some setbacks compared to the manna seen in the 2007/2008 period. The deteriorating mood among potash investors was largely caused by China and India, two of the world’s largest buyers, having become reluctant to buy at the prices set by the largest suppliers in Canada and Russia/Belarus. China and India alone have accounted for more than a quarter of world demand in the past few years. Their reduced demand for 2012, also attributed to the fact that the Indian government has chosen to subsidize nitrogen instead of potash, has forced the major suppliers to reduce capacity and pricing. This has helped to prevent oversupply and sustain spot prices; moreover, the reduced demand from India and China was somewhat compensated by increased or steady demand in Europe and South America, Brazil in particular. At the end of 2012, the market has stabilized and after the new Chinese and Indian contracts are signed, the demand situation could change in favor of higher prices for 2013.
The World Bank said that prices for potash (KCl) fell 10% from September to November to USD 425/ton, experiencing sustained downward pressure. While lower than prices of recent years, it should be stressed that they are still very high compared to an average for the decade and considering that the records were set in 2007 in view of an impending food shortage crisis. Nevertheless, in 2013 potash should favor higher prices. This is because of rise of demand in view of increased cultivation of wheat, corn, soybeans and other oilseeds. While India could see an increase in demand toward the end of 2013 – as the government could revert subsidies from nitrogen to potash – Brazil will be one of the main potash importers of the coming year. A more general rise in potash demand could result from the fact that farmers in North America, as well as India, were rather cautious with fertilizer purchases in 2012 and especially toward the latter months of the year. This suggests they will be compensating in 2013, helping to reduce excess supply.
In November alone, the stocks of the three major North American producers and exporters PotashCorp, Mosaic and Agrium, altogether, increased by 20% and reached a size of three million tons. Therefore, while demand should pick up at the farm level, the actual production of potash will continue along the lower production trend noted over the past fall. The Russian giant, Uralkali, has indeed confirmed it plans to reduce output for the first quarter of 2013. China has been increasing its own potash production; however, the country has recently changed government and the mining industry has been slated for changes that could affect this growth. A Chinese investment funds has also purchased an Uralkali bond, betting on higher potash values. What is more certain is that India, far more dependent on potash imports than China, due a lack of domestic capacity, is facing a potential shortage rather than excess of potash stocks. This will be one of the main drivers of the potash market in the next year.
Canada’s PotashCorp has offered an optimistic outlook for the development 2013, despite its present overcapacity and foresees the spring of 2013 to be a very profitable season for potash. Nevertheless, given global economic circumstances, as markets and investors remain cautious over a complex negotiation for crop nutrients in China and India, Europe is still struggling to overcome the credit crisis the economic recovery in the United States remains slow and marred by the prospect of a ‘fiscal cliff’. Even, if most potash analysts would bet on higher prices for 2013, compared to 2012, it is certain is that potash prices will not hit any new records even as demand should grow thanks to ‘less cautious’ (or more motivated) buyers. The general potash market trend suggests that for the emerging new players, gaining access to Indian, Chinese and Brazilian farmers remains one of the keys for growth. Nevertheless, while far beyond its actual potential, African demand for potash will be one of the main drivers of potash production in the next few years. Location becomes very important in this case, because the price of transport shall determine the competitiveness of a given resource. Potash miners operating with good access to transportation links easing exports will have a major advantage.