The situation turns around. BPC enhanced exports in 2016 and is fully committed in Q1 2017.
The previous year was complicated for producers and exporters of all commodities. However, in mid-2016 potash producers and exporters seemed to have bottomed out. Nevertheless, prices remained weak. Resulting from these developments, in 2016 YoY revenues of BPC declined by 23% versus 2015. The exports of Belarusian potash fertilizers totaled at 9.5 mln tons, versus 9.2 mln tons in 2015.
The situation is complicated while the trend is positive
“The positive momentum of the commodity market alongside with the smart policy of producers and exporters enabled to bottom out in the mid-year and upon settling the Chinese contract, to gradually increase potash prices leaving demand and consumption intact”, according to BPC in the comment to tut.by.
“H1 was a complicated period for the global potash market, while in H2 the situation leveled out step by step. As of February 2017, BPC managed to increase prices in Latin America, particularly in Brazil, US, SEA, Europe, and Africa, while maintaining leadership positions among potash exporters. In our view, the upward trend will continue into the next year” – BPC assumes.
Evaluating the market share of Belarus in the global potash exports, the company explained that the official statistics for 2016 was still pending, but it is thought to be approx. 20%.
At the end of 2016 Mikhail Rusy, the deputy prime-minister of Belarus was highly optimistic in his assessment of the potash market in 2017, forecasting that potash exports would grow as high as approx. 10 mln tons. The exporter believes, 10 mln tons may be a very good benchmark in terms of volumes. «However, in its business operations BPC is guided by the actual market needs and the netbacks from a specific market. If a market requires a certain decline in supply, we respond accordingly” – emphasized the spokesperson of the company.
“Going back specifically to the previous year, in H1 2016, while the Chinese contract was missing, the market situation did not look favorable, with demand remaining weak. In order to meet demand, JSC Belaruskali and BPC cut the output and exports to a greater extent than other suppliers did, having performed as a responsible supplier, exercising a well-reasoned market policy. Moreover, after the market recovery and demand rebound, shipment volumes of Belarusian potash grew again.
In the context of a favorable market situation both the output and exports of JSC Belaruskali and BPC grew higher than those of other major producers, the company notes.
“At this point prices also grew. Looking back on the results of 2016, it should be emphasized that JSC Belaruskali and BPC are the only ones that managed to grow exports in 2016”, according to BPC.
Last year BPC took the lead in settling both key contracts with China and India, and experts took a favorable view of this strategy, acknowledging that the timeframe-volume-price combination had a favorable impact on the market. This year BPC expects contracts talks to start in February. “There is a range of factors that govern talks, and all of them are positive. We observe the upward trend in the spot markets in terms of both volumes and pricing. We observe lower inventories in China. Meanwhile, unlike the previous year, BPC is fully committed in Q1”, BPC notes.
“In general this year the global demand-supply situation varies from the previous year. While 2016 saw a significant decline in demand, the situation has reversed now – we see that supply is tight in the market”, the company emphasizes.
As the result, starting from 2017 Belarus recovered an export duty on potash: from October, 1 to December, 31 2015 it had to be lowered down to €45/ton versus €55/ton being previously in effect. It is understood that the budget of Belarus is drawn up based on the assumption of the potash export duty at €55/ton, and in case of a less favorable scenario there would be a risk of losses to the budget income against this revenue item.
A longer-term outlook of the company is favorable, noting that the global potash market is still on the run. According to the preliminary estimate of the International Fertilizer Association (IFA), the global shipments reached 63.3 mln tons in 2016, slightly higher than in 2015 (63.1 mln tons). According to the IFA forecast, in 2017 this figure would grow slightly reaching 64−65 mln tons.
It should be noted that a few large projects are due to be launched in the industry. “Undoubtedly most of them will be implemented. It is yet to be seen when the volumes being declared will be achieved and to what extent a balanced policy of potash producers would enable to grow global potash consumption”, BPC warns. At this point, experts believe, one should keep in mind that potash reserves being mined deplete gradually now and some of the new projects offset retiring capacities. More specifically, the output from the Legacy project, due to be launched in mid-2017 offsets the projected curtailments of potash production by Intrepid that shifts to producing the Trio complex fertilizer, BPC explained.
Other projects most likely to come online in the near future are those of EuroChem. “As far as these projects are concerned, one should consider the following: currently Russia is just tenth in terms of fertilizer consumption, although all kinds of fertilizers are produced in the country. Given the trends of agricultural development, there is a huge potential to increase the domestic consumption of mineral fertilizers in Russia. Therefore, a large volume of output from these projects may be absorbed by the domestic market”, according to BPC.
Belarusian potash has reached a record high share in global export
It is not a good time for selling raw materials these days. What is going on on the potash market, why fertilizer manufacturers are reducing their output, and how Belarusian Potash Company is operating in these conditions are covered by BelTA's interview with BPC Director General Yelena Kudryavets.
- Ms Kudryavets, could you tell us about the key achievements of 2015? What is BPC's share in the global export? How has the company's share changed in the last few years?
- In 2015 the Belarusian potash industry reported its highest share in the global export on record. According to data of the International Fertilizer Industry Association (IFA), the share of Belarusian potash in the global export reached 19.3%, up from 18.8% in 2014. According to the IFA data, in 2015 the global potash export dropped by 5.7% to 47.6 million tonnes. To compare, in 2014 the global export reached 50.5 million tonnes. Belarusian Potash Company increased its market share while preserving a balanced and responsible attitude to the market. We have always tried to keep things balanced, focusing primarily on effective sales. Thanks to that Belarusian potash export in 2015 also went up in monetary terms in comparison with the previous year.
- What market trends do you expect in the future? What is the current state of affairs on the potash market? What international events impact the potash market to the greatest extent?
- The potash market is part of the global macroeconomic system. It is a raw material market. It follows trends that can be observed on other markets of raw materials. Potash consumption and respectively potash export are directly related to the general economic situation in the world and in individual importing countries. The exchange rate of national currencies, government subsidies and loans available to farmers greatly influence sales. We've recently seen devaluation processes in Brazil, India, Malaysia, Ukraine and other countries. They certainly influence the demand and the purchasing power. Revenues of farmers have dropped as well. For the last few years prices for the staple crops — wheat, corn, soya, soya products, soya oil, sugar, cocoa, coffee, and cotton — have been falling and a slight improvement was registered only recently. Weather is also another important factor on the fertilizer market. In particular, the El Nino effect [temperature changes in the surface level of water in the equatorial part of the Pacific Ocean greatly influence the climate] has made a serious contribution. For instance, in Central America the rain period was delayed by more than two months. Severe drought was registered in South Africa. Drought greatly affected the demand in Malaysia, Indonesia, and Thailand. Due to the lack of rain the sowing of the main agricultural crops was delayed. Due to low humidity farmers had to postpone fertilizer application.
- Major manufacturers of potash fertilizers declared plans to reduce output. The Canadian company PotashCorp has shut down one of its mines. What can you say about that? Is the output of Belarusian potash fertilizers going to take a dive?
- We see what is going on in the world but our business decisions are based on our own analysis of the market. Bearing this analysis in mind, we make as much potash fertilizers as the market will buy. The joint work of Belaruskali and Belarusian Potash Company is guided by real needs of the market. We practice a responsible and balanced attitude towards production and sales of this valuable mineral. In our opinion, making products that will not sell is not a good idea since storing them costs a lot of money. This is why we keep things balanced and flexibly respond to changes of the market demand. We refrain from commenting on actions of other manufacturers. We are not inclined towards speculating about their reasons and their goals. The potash market is a cyclical one. There can be upsurges and there can be falls. We believe that the last two years was a very successful and positive period. Belarusian potash export volumes exceeded the average figures registered in 2005-2013 by over 3 million tonnes. Certainly, things will change this year since global sales on the potash market have dropped. We can say that in January-February 2016 our export dropped by roughly one third in comparison with the same period of last year. Due to low market activity we expect export to drop respectively in Q1 2016.
- How will the global demand for potash fertilizers change in the near future?
- The data we have indicates that farmers all over the world use insufficient amounts of potassium. So there is a potential for sales. Whatever may happen today, biofuel production is on the rise, population numbers are increasing, the amount of farm land per capita is falling, the middle class in developing nations is growing and switching to diets, which are rich in protein, vegetables and fruits, which need a lot of potash to grow. All these factors indicate that more agricultural products need to be made, more mineral fertilizers need to be applied, and more potash needs to be sold. IFA data indicates that in the long term the global potash market will grow by 2.5% per annum.
- What markets does Belarusian Potash Company consider promising? What is the situation in Brazil, Europe and other markets?
- Every market has its own peculiarities, its own advantages and prospects. We always try to think systemically and focus on effective sales. As you know, we sell potash fertilizers in over 100 countries and therefore can be flexible and mobile. Naturally, China, India, and Brazil are strategic markets, which state affects the global potash market situation. For instance, the Brazilian market is sending positive signals. We have noticed a considerable increase in demand in this country. We are confident that the market has become more active and hope that we are past bottom prices. Certain growth and rising prices are noticeable already. It is possible that Brazil will be the engine to encourage positive dynamics in other regions. Europe, including Western and Eastern Europe, is a traditional market for us. This market is more conservative, is less prone to shocks and our sales are steady. We cooperate with virtually all the European countries. We work together particularly actively with Norway, Belgium, Poland, Sweden, and Italy. I would like to thank my colleagues, personnel of Belarusian Potash Company and Belaruskali. Today's accomplishments have been made possible thanks to our working together, supporting each other and thanks to our vision of the common goals. I am pleased to think of employees of the two companies as one close-knit Belarusian potash team.
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