Viewpoint: Potash market more positive for 2021

Market participants expect demand for MOP in 2021 to outstrip levels this year, and for the reduction of Covid-19-related issues to boost deliveries and prices. But there are several potash projects that complete next year that will add supply to an already glutted market, potentially limiting price gains.

Covid-19 has only had a limited direct impact on fertilizer demand this year, but the effects have been more severe in industries that are heavy MOP users. Most operations linked to the potash industry have nevertheless been able to carry on uninterrupted, and demand in the US, India and in particular Brazil is well up on last year. For 2021, the market expects a continued level of insulation from the myriad effects of Covid-19, as governments continue to prioritise food security, assisting with the smooth running of fertilizer deliveries.

The market will start next year focussed on large contracts between suppliers and buyers in India and China. Contracts mainly expire at the end of 2020, and negotiations are likely to start in January. If contracts are concluded early next year, the new price will provide some clarity to other regions, which could stimulate further demand early on in the year, particularly if buyers expect prices to rise during the course of 2021. Argus expects China and India headline contract prices to rise by $5-15/t from $220/t cfr and $230/t cfr, respectively.

Argus forecastsMOP demand at 69.2mn t in 2021, up from projections of 66.9mn t for this year and 64.4mn t in 2019. This year's consumption, although up on 2019, was still lower than expected, as the restocking that many anticipated after a lacklustre year for demand in 2019 did not fully emerge. Instead, many buyers bought cautiously, preferring to have only quantities required in a period of uncertainty. But producers are confident that next year's demand levels will support the extra capacity due on stream next year, as well as the continued ramp-up of production from new potash producer Eurochem and German potash producer K+S' mine in Canada.

New projects for 2021 do not include Jordanian potash producer APC's 140,000 t/yr expansion at Safi, after it delayed the completion of the project from this year to 2022, with no detail given for the significant delay. But even without APC's expansion, around 3.2mn t/yr of new MOP capacity is due to come on line next year, more than Argus' projected demand increase of 2.3mn t to 66.9mn t in 2020 (see table).

Argus still expects prices to rise next year despite production capacity far outstripping demand growth. Suppliers try to balance their assets to match supply with demand, and so the extra capacity does not always equate to similar levels of production. Some projects earmarked for completion in 2021 may roll over into 2022. And projects that do complete next year will ramp up gradually, meaning only some of the 3.2mn t/yr of extra capacity will be produced.

The potash market could be hit by the impact of sanctions or changes to existing supply agreements with Belarusian producer Belaruskali. Norwegian fertilizer producer Yara recently said it has growing concerns on the treatment of Belaruskali's staff and expects its business partners to uphold ethical guidelines. The EU and US have also signalled further sanctions against Belarus, although the measures have yet to target potash production in the country.

A sudden drop in Belaruskali export arm BPC's sales could have an array of effects. Losing a significant buyer such as Yara could put pressure on BPC to offload large volumes to China and India, for example, which could incentivise BPC to settle at a lower contract price than it normally would. Equally, buyers unable to purchase from BPC would have to seek volumes elsewhere. Other suppliers could take advantage of a short-term supply shortage and lift prices. But the impact is ultimately dependent on the severity of the response, and it is still unclear if Belaruskali will see any impact, as so far it has maintained production with just a few days of interruptions in August, despite growing tensions in Belarus.