Potash Outlook 2021: Flat Prices a Launchpad for Growth

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The price of muriate of potash (MOP), the most common potash fertilizer, remained depressed in 2020 despite higher food costs globally and better growing conditions.

MOP started 2020 by dipping below its December 2019 average price of US$265 per metric ton (MT) to reach US$245. Values held in that range until May, when another decline set in.

From June to December, MOP was selling for US$202.50, a 23 percent decrease from its 2019 average.

Potash trends 2020: MOP resilient in face of COVID-19

One factor that contributed to the MOP’s price decrease was the widespread toll of the coronavirus pandemic. But as Andy Hemphill, ICIS Fertilizers’ senior markets editor, sulfuric acid and potash, pointed out, MOP wasn’t hurt as badly as some other commodities.

“COVID-19 has touched every continent and caused untold economic damage, but even against this backdrop, the global MOP industry has endured better than many other industries — and indeed, better than some rival fertilizers,” he told the Investing News Network.

“With a global nameplate production capacity greater than 69 million tonnes per year, and annual trade of approximately 53 million tonnes, potash is one of the most-used stock fertilizers, trusted by agribusinesses worldwide,” added Hemphill.

While most commodities tanked in March, MOP prices held steady at the US$245 level, likely due to the small amount of producers and the limited number of countries that produce potash.

Canada, Belarus, Russia, China and Germany are the top five potash countries by output, accounting for roughly 35 million MT of the world’s 61 million MT of annual production.

“This dichotomy between great market size and the limited number of MOP majors worked in favor of the potash industry as the coronavirus spread across the globe, helping to alleviate the logistical difficulties faced by many other industries — and indeed rival fertilizers,” explained Hemphill.

Despite being fairly insulated from the widespread March volatility, MOP did feel the effects of global lockdown efforts. These conditions were further heightened by the fertilizer’s declining price.

“Already weakening at the start of 2020, by Q2 MOP offers were sliding ever lower, and Belarusian Potash Company (BPC) decided to nip the downward movement in the bud,” he said.

BPC, the world’s largest private potash company, reached a deal at the end of April with a consortium of Chinese buyers on MOP contracts for the second half of 2020. The agreed-upon price was US$220, including cost and freight (CFR).

“The agreement — a US$70 per tonne decline on the previous benchmark of US$290 per tonne CFR agreed for 2018 to 2019 — took many players by surprise, with one Southeast Asian distributor describing the decrease as ‘amazing,’ and beyond predictions,” said Hemphill.

In a press release, BPC cites the precariousness of the global situation and the importance of the agricultural sector as reasons behind the deal.

“Food security is once again at the top of the list, and regularity of food production and related distribution chains must be prioritized,” reads the announcement. “It is at such moments that central to humanity concepts of responsibility and care for our common future come into play.”

Following the Chinese agreement, a six month supply contract with India (the second “key bellwether import market”) was reached at US$230 per tonne CFR.

“This price was a US$50 per tonne slide on the last agreement for India, and US$10 per tonne above China’s benchmark deal, further cementing ‘the basement of the market,’ as one MOP major’s Latin American sales chief put it,” said Hemphill. “Since then, MOP prices have either stabilized or ticked up slightly — albeit remaining far from the highs seen in 2019.”

Potash trends 2020: Saskatchewan bolsters sector

While BPC opted for lower price points in its top markets, other producers chose to curtail output.

In January 2020, Mosaic (NYSE:MOS) shut down its Colonsay potash mine in Saskatchewan indefinitely due to excess inventory and poor market conditions. The company had previously idled the mine in August 2019, a year that also impacted sector major Nutrien (NYSE:NTR, TSX:NTR).

In 2019, leading potash producer Nutrien idled production at three mines in the Canadian province, reducing its output by an estimated 700,000 MT.

Before the coronavirus hit, both companies had anticipated a better market in 2020. As mentioned, while the potash market did experience setbacks, its effects were mitigated by the need for food production.

“Fertilizers and food are vital industries,” said Hemphill. “More impact was felt in logistics, delayed deliveries, compound fertilizer plant outages and staff shortages.”

An increase in demand also helped keep the pandemic’s toll on the potash market at bay. In December 2020, US farm income was slated to increase 43 percent year-over-year. The rise was attributed to a bump in crop prices and an increase in government aid.

In Canada, sales receipts registered 8 percent growth for the first nine months of the year, and in December Saskatchewan announced plans to offer more incentives to potash companies. The province’s amended Potash Production Tax Regulations feature a 40 percent tax credit for research and development projects and market development programs.

“These changes will promote the expansion of Saskatchewan’s potash sector and ensure that our province remains the preferred jurisdiction in which to pilot innovative technologies,” Energy and Resources Minister Bronwyn Eyre wrote at the time.

“As we move into economic recovery, we want to attract and foster new, sustainable advancements in our province’s world-class resource sector.”

Hemphill believes the announcement will bolster Canada’s resource industry, especially the firm that is in charge of all the country’s potash exporting and marketing.

“Canadian Potash Exporters (Canpotex) is a heavyweight in the global MOP market, and additional sources of supply would only increase the marketing arm’s selling power,” he said.

Potash outlook 2021: A look ahead

MOP prices have held at US$202 for the last seven months; however, potash-focused analysts and sector participants believe an increase in food demand and the loss of fertile land, along with population growth, are undeniable and will result in higher values.

Hemphill expects prices to rise over time if the global community can gain control of the coronavirus.

“The global MOP market entered 2021 with roughly the same degree of supply and demand as before — albeit with pricing well below that seen at the end of 2019,” said Hemphill.

“Over time, it is likely MOP offers will tick up, spurred by firmer contract prices in India and China — although the highs seen in years past will remain distant memories until a reliable cure for COVID-19 can be found, and the world turned right side up once again.”

In the short term, an increase in contracts penned by Indian buyers in January is seen as likely and could be a potential tailwind. For the long term, Hemphill sees a more balanced market with positive fundamentals, barring a few caveats.

“We expect global production to stabilize or increase slightly — at least initially,” he said.

“Provided 2021 proves a more bullish year for demand as (hopefully) a vaccination program restores the world to working order, producers will likely attempt end-year production control, as is normal to tighten supply and support pricing in quieter winter months.”

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Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.