Page 2 of 2 Russia reaps rich harvest
with potash By John Helmer
minimum of 2.5% bio-diesel or
bio-ethanol by 2009. Two years later, the blend
must be 5% biofuel. Canada is considering
legislation for the same 5% target. India has
mandated 5% by 2012; 10% by 2017. Brazil, the
world's biggest producer of ethanol, is already up
to 23% of biofuel per barrel, rising to 25% soon.
Brazil leads the world's biofuel
exporters, with 48% of the global supply of
sugar-based bio-ethanol. The US is both a major
producer of corn-based
ethanol, and an importer. Germany produces roughly
half the global supply of bio-diesel, but last
year China moved ahead of the European Union in
ethanol production.
According to a report
in May by the International Fertilizer Association
(IFA), domestic cropping has sufficed until now to
supply Chinese distillers. But as demand for the
fuel outpaces supply, China will have to import
both larger volumes of potash for growers, and
larger volumes of biofuel.
The IFA report
calculates that in the 30 years between 1975 and
2005, global biofuel output rose from zero to 30
million tonnes. But the biofuel growth rate is
accelerating. In the decade to 2015, biofuel
output is expected to rise almost threefold to
more than 80 million tonnes.
Sources at
Uralkali, which is based in Moscow and at the mine
site in the central Russian region of Perm, said
that Malaysia and Indonesia were important
strategic markets. They are major producers of
biofuel. The world's largest palm-oil producer and
exporter, Malaysia has embarked on a comprehensive
palm biofuel program since 1982, and has
successfully established the use of palm methyl
esters and a blend of processed palm oil (5%) with
95% petroleum diesel, as a fuel for the transport
and industrial sectors. Indonesia has been
increasing its area under plantation of oil palm,
and it will soon overtake Malaysia as the largest
palm-oil producer in the world.
Major
international firms are showing interest in
developing the bio-energy sector in Indonesia,
which has secured investment commitments to date
estimated at almost $18 billion. British Petroleum
is one, Bioenergy of Sweden another. Others
include China's energy firms, China National
Offshore Oil Corp (CNOOC) and China Petroleum and
Chemical Corp, and Malaysia-based Genting Biofuels
Asia.
CNOOC is currently building three
bio-diesel plants in West Kalimantan. In addition,
three Austrian companies - Energea, BioDiesel
International and the Christof Group - announced
recently that they are considering a plan for new
bio-diesel refineries with Indonesian partners.
In the competition to supply potash to
this Asian growth business, Uralkali and
Belaruskali are rivaled by the North American
alliance, Canpotex, along with smaller suppliers
from Israel and Jordan.
Canpotex, which is
directed from headquarters in Singapore, has been
running a market development program in China for
20 years to encourage the use of potash in
balanced fertilizer applications. According to a
Canpotex release, "Demonstration plots show
farmers, in their own fields, the benefits of
balancing nitrogen, phosphates and potash in the
proper ratios. China uses over 20 million nutrient
tonnes of nitrogen annually but just over 3
million nutrient tonnes of potash, a 10:1.5 ratio.
Chinese scientists recommend a 10:2.5 ratio if
crops are to make use of all the nitrogen applied.
Canpotex spends more than $1 million a year to
help Chinese farmers understand they need to apply
more potash in order to obtain maximum benefit
from the large quantities of nitrogen fertilizers
they are using."
Smaller-scale market
promotion programs by Canpotex are also under way
in Vietnam and Pakistan.
In Asian trading
terms, BPC believes it has a significant advantage
over Canpotex. "It is more expensive for Uralkali
to ship to China by sea than for Canadians," a
market source told Asia Times Online. "The current
difference in maritime freight between the Pacific
ports of Canada and the US, versus St Petersburg,
where Uralkali operates its own terminal, is more
than $10 per tonne. However, it is cheaper for
Uralkali to reach the Chinese border by railway
than for the Canadians by sea."
For
supplying India with potash, Uralkali has a
shipping advantage over the Canadians by $10 a
tonne. The Canadians are present in both markets.
They have increased their exports to India during
the past three years. After substantial
consumption growth in Asia during the same period,
BPC also expanded its presence in the key Asian
markets with higher CFR prices and lower transport
costs. Additionally, prices in the Southeast Asian
markets are more market-driven than the
government-controlled Indian market, which is
heavily dependent on state subsidies.
On
June 6, BPC announced that it had agreed with
India's largest fertilizer importer, IPL, a $50
per ton increase in potash deliveries. This was
significantly larger than industry analysts had
expected. The depletion of potash inventories in
India during the suspension of Russian shipments
last year was a contributing factor.
Globally, the commodity-price trajectory
is moving steadily upward. It has tripled since
2004; from next month, the Southeast Asian price
is forecast in industry reports to grow $40 to
reach $300. "This is an impressive achievement.
The problem of deliveries of potash fertilizers to
China and India in the current year is solved," a
BPC source told Asia Times Online.
Steven
Dechka, Canpotex's chief executive, declined to
answer questions about Canpotex's market
forecasts.
Next year, according to a
recent report on potash issued by Goldman Sachs,
the price of potash will follow iron ore upward,
prodded by comparable pressure from China's
demand.
Based on the similarities between
the two products - low inventories, China's
growing appetite, improved global demand
fundamentals, concentrated markets, almost
"prohibitive" barriers to entry, expensive and
long-lead greenfield projects, etc - we believe
an extrapolation of iron-ore developments to the
potash market is instructive. With the potash
market lagging by about one year compared to
iron ore (iron-ore price increases started in
early 2003 versus domestic potash prices that
did not start moving higher until [first
quarter] 2004), we believe there is plenty of
room for further price increases.
We
estimate that US farmers in the Midwest will pay
more than $300 per ton in the next two years, a
22%-plus increase versus current prices, while
at the same time export prices will continue to
rise in the major export markets of China,
India, Brazil and Southeast Asia.
Goldman Sachs, which is an investment
banker to North American potash producers, is also
forecasting an early start to price talks for
2008, and an even bigger Chinese concession than
last year's .
The tightness in the global market
should impact the new Chinese potash
negotiations for 2008. We expect global
producers and China to start the negotiations
much earlier than before, and China to pay a
higher price increase than in the past two years
as it is currently at a major discount to other
major importers. In our view, given the market
fundamentals and low Chinese potash inventories,
we believe that producers should be able to get
close to a $50-$70 per ton increase for 2008.
John Helmer has been a
Moscow-based correspondent since 1989,
specializing in the coverage of Russian business.
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