Potash producers 'must survive Q4' amid market downturn

A major shake-up in global potash market share appears to be on the horizon, as muriate of potash (MOP) major Uralkali and nitrogen player URALCHEM are set to become the controlling shareholders in Brazilian fertilizer firm Fertilizantes Heringer SA, which is currently under bankruptcy protection.

When finalised, the agreement will give Uralkali and URALCHEM, which produces and exports nitrogen and complex fertilizers, a much wider stake within the significant fertilizer market of Brazil.

The move was also seen as a final chance to revive Heringer, which used to be a major player in the Brazilian market before seeking bankruptcy protection earlier this year.

“The move was not unexpected. [Uralkali and URALCHEM] have been considering a buy for many years, and looked at Herringer as a way to better sell their products into Brazil. It’s not clear what the split will be between nitrogen and MOP into Heringer’s channels though.”

A source at a second European potash player added: “We heard the deal was proposed and accepted within four days - very quick for something like this. It’s a bit of grandstanding.”

DEPRESSED MARKET

The news comes amid continued bearish sentiment and weak demand for potash around the globe - and as many major producers slashed Q4 production in response.

In Germany, K+S said it was responding to the current weak demand by reducing fertilizer production for MOP by up to 300,000 tonnes by the end of 2019.

The effect of the production adjustment on EBITDA is expected to be in the amount of up to €80m, it added.

Plus, Uralkali has announced plans to cut production for the remainder of the year, amid declining demand and bearish market sentiment.

In an announcement on 20 September, Uralkali said it would reduce output by 350,000-500,000 tonnes, and take its complex into a temporary shutdown for maintenance.

Finally, Belarus’ BPC is mulling a reduction in output of up to 30% for three or four months - although the precise figure is yet to be confirmed, a company spokesperson said.

It is a similar story in Canada - one the world’s largest potash-exporting countries.

Industry major Nutrien in mid-September revealed plans for inventory shutdowns of up to two months at its Allan, Lanigan and Vanscoy potash mines in Saskatchewan during the final quarter of 2019.

If all three potash facilities are idle for the full eight weeks, potash output may fall by 700,000 tonnes, and potash annual earnings before interest, tax, depreciation and amortisation (EBITDA) could be reduced by $100-$150m (C$132m-198m).

As a key salesperson at a second European producer concluded: “[Producers] need to survive Q4,” before Q1 2020 may offer a lifeline to the sluggish potash industry.

KEY INDIA CONTRACT

That said, should the key bellwether talks ongoing between Uralkali and Indian Potash Limited (IPL) for the 2019-2020 annual Indian MOP import contract result in a decline, there may be only continued bearish price pressure ahead.

Once Uralkali settles its contract, other producers traditionally follow the same price level with their own, separate, customers.

There is talk in the market that a rollover of $290/tonne CFR (cost & freight) India is possible, although decreases of up to $30/tonne on the 2018-2019 price have also been heard discussed.

Indian MOP port stocks have increased by 16,000 tonnes week on week to 333,000 tonnes - although overall nation-wide MOP stocks are understood to be declining fast.

It appears likely India will settle the key bellwether contract before China - the other key importing nation - as Indian stocks are running low, and application season is on the horizon.

Chinese potash inventories are reasonable, offering buyers some time to consider their approach to the talks.

However, when India settled first last year, Chinese buyers were left a paying $60/tonne increase on the 2017-2018 contract price - more than the Indian buyers’ $50/tonne increase.