German potash finds growth in China
By John Helmer
MOSCOW - In the global marketplace for potash - one of the vital nutrients for
plant growth, food production and fertilizer fortunes - no one is sharper at
spotting a bargain than China, whose farmers and state fertilizer distributors
comprise the world's largest consumers and importers of potash.
When the Chinese fix their annual contract price for potash imports, they set
the marker for counterparts in India, Southeast Asia and Brazil, the
next-biggest potash markets, to follow.
China's demand has been supplied in recent years by several sources, including
Canpotex of North America, representing Canadian and US mining companies such
as Potash Corporation; the Belarusian Potash Company (BPC), representing potash
mined in Belarus and Russia; and Israel Chemicals Ltd (ICL). The China market
grew steadily during the past four years of strong demand for potash and the
commodity price boom, and so did potash prices.
That is now history. In the last half of 2008, the crash of all commodity
prices and the shortage of farm credit led most potash producers to curtail
production dramatically and it also prevented the accumulation of unsold
stocks. In the first quarter of 2009, Russian producer Uralkali, for example,
cut potash production 63% to 459,000 tonnes, from 1.3 million tonnes.
Saskatchewan, Canada-based Potash Corp, the world's largest potash producer,
has reported that in the same period it cut sales volumes to North American
customers by 86%, and to the rest of the world by 78%.
But it's spring in China; and after an unusually rainless winter, farmers
preparing to plant must have more potash than usual to improve their yields out
of the dry ground. This is also the time that China's big-volume buyers usually
meet with the major producers and suppliers to fix the volume of deliveries of
imported potash for another six to 12 months.
But if the China National Agricultural Means of Production Corporation
(CNAMPGC), the China National Chemical Construction Company (CNCCC), and
Sinochem - the three major Chinese import buyers - keep their pens in their
pockets, and their contract orders off the table, what exactly is happening?
The answer is that a relatively big German company, with a relatively small
share of the Chinese market for imported potash, is making a quiet play, with
an offer on the table the Chinese cannot resist.
That company is K+S Aktiengesellschaft of Kassel, Germany. K stands for kali
(potash, potassium) and S stands for salz (salt). Five years old in the
present corporate structure, K+S is Europe's largest producer of salt; its
well-known package trademark is Morton's little girl shielded by an umbrella,
losing her salt, with the slogan: "When it rains, it pours". This was a
US-owned trademark for almost a century until Dow Chemical sold it along with
the American company's food and industrial salt products, to K+S for US$1.7
billion; Morton's little girl became K+S's on April 2 of this year.
The wind blowing the umbrella for K+S has been potash demand. During the
commodity boom, salt worth 619 million euros (US$816 million) in 2008, up 14%
on 2007, lost proportional value in the group's total revenues of 4.9 billion
euros. This is because the growth of potash prices drove the K+S group's potash
and magnesium division to 2.4 billion euros, up 70% for the year. K+S says it
lifted 8 million tonnes of potash and magnesium last year from six German
mines; it counts itself the fourth-largest potash producer in the world, with
an export market share of one tonne traded in seven.
The latest Chinese import statistics for potash in the quarter to March 31
reveal that China imported more than 170,000 tonnes of German-origin potash;
that is more than a threefold increase on the same period of 2008 and almost as
much as was imported from Germany during all of last year.
Asked by Asia Times Online to confirm that the Chinese customs data indicate
that this German potash came from K+S, the company declined to say. The company
is also unwilling to acknowledge that the price at which these shipments from
Germany have been delivered to China is less than $570 per tonne CFR (cost and
freight delivered to Chinese port).
According to analyses issued this month by Scotia Capital in Toronto, and drawn
from a variety of Chinese and foreign industry sources, K+S has been selling
into China within a price range of $540 and $565 per tonne CFR. This is more
than $100 per tonne below the price at which supplies of potash are reported in
the trade to have landed in China late last year. Although K+S has in the past
made relatively small sales of potash to Chinese importers, and the new number
remains small - in total, Chinese import volumes of potash have been between 7
million and 9 million tonnes per annum between 2006 and 2008 - the significance
of the K+S move is its timing and its price.
At the end of 2008, all the major international potash suppliers to China,
including Canpotex, BPC and ICL, wound up their contracts, and halted fresh
deliveries to China. The suppliers then proposed re-opening contract
negotiations for this year with the Chinese, but there was no response. Not
until this month have the Chinese announced the formation of a "buying
consortium", including Sinochem, CNAMPGC and CNCCC, and contract talks have
officially commenced. Sources close to the table say the Chinese side is in no
hurry to make a deal.
BPC and Canpotex do not comment on contract negotiations or price targets. Oleg
Petrov, sales chief for BPC, said this week that while India's potash
inventories have become very low, China has enough inventory for several
months, making it less anxious to come to a contract agreement.
That's what makes the tactics of K+S significant and its intentions worth
investigating. In March, Canpotex sold two cargoes of North American potash
into Malaysia and Indonesia at $735 per tonne (CFR). This was the first price
reduction from that exporter since last year. In April, Canpotex followed with
the sale of two cargoes to Brazil, at $750 per tonne.
BPC had already announced in March that it was offering a 25% discount off the
spot price of Russian and Belarusian potash on the Brazilian market from $1,000
per tonne to $750-$765 per tonne, good for two months to the end of May. But
the downward trend of prices hasn't aroused the buying interest from the
Chinese, either for the Russian or the North American product. Only K+S has
signed new orders, at an even deeper discount.
Chinese buyers acknowledge that the K+S sales to date of 170,000 tonnes, even
if they are repeated in the current quarter, are a drop in the bucket by
China's import standards. But they are having a much bigger psychological
impact, Chinese trade sources claim. This is because K+S sales agents around
China are convincing the domestic market that they will keep up supply volumes
and keep down price growth.
If another 100,000 tonnes of K+S potash land before May 25, when the
International Fertilizer Association holds its annual conference in Shanghai,
Sinochem and CNAMPGC may decide to keep talking past deadline and wait for a
further drop in price. India, the next largest global importer, appears to be
delaying renewing its annual contract until it sees what the Chinese do.
Chinese buyers are also reported by Scotia Capital in Toronto as saying that
right now the spring planting requirement for potash has been met, and that 3
million tonnes of potash remain in inventory. The Chinese are claiming they
have enough potash in stock to last for another three months. But they will
have to conclude the new contract negotiations in time for deliveries to be
made by the time the autumn planting season begins.
Market analysts in Europe and North America say they have only recently seen
the evidence of the K+S move in China. "In general," one told Asia Times
Online, "everyone is waiting for [BPC and Canpotex] to negotiate." How long the
talks will last is anyone's guess. One Canadian analyst said he is sure they
must be concluded, and new volumes and prices agreed, in time for deliveries to
reach China before September.
Roydel Stewart, the fertilizer specialist at Alfa Bank in Moscow, told Asia
Times Online that the market had been taken by surprise by the K+S initiative
in the China market. He said that when asked, K+S "vehemently deny that they
sell to China at below-market prices. K+S never reports its potash production
or sales. They group it with other products, so we don't know exactly how much
potash they produce and sell. So it is possible, I suppose, that they are
sending some volume to China ..."
K+S spokesman Katja Seeger was asked what sales strategy K+S is keeping under
the famous umbrella and whether it is K+S's aim to undercut the supply and
price controls of its international rivals, and improve its potash sales to
She replied: "China is the biggest potash market in the world. K+S KALI GmbH
traditionally supplies this market and will go on doing so. The quantities we
ship are considerably smaller than those of some competitors. We ask for your
understanding, that at this point we won't discuss the strategic orientation of
John Helmer has been a Moscow-based correspondent since 1989,
specializing in the coverage of Russian business.