15 maj 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 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.

Tight market

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.