INSIGHT: After boom and bust, global potash strives for stability

LONDON (ICIS)–Three of the world’s largest muriate of potash (MOP) fertilizer majors recorded considerable financial losses year-on-year in 2023, as a panic-driven price boom of 2022 led to a bust last year – although signs of stability have given rise to hopes for a more ‘normal’ year ahead.

The global MOP market trades around 70 million tonnes annually – making it the largest-volume fertilizer sold on the planet – and has undergone complete upheaval in the past three years.

Potash is an umbrella term for a number of potassium-based powdered or granulated fertilizers produced in only 13 nations worldwide; with a total yearly production above 90m tonnes.

This limited number of sources explains why export sanctions first levelled in mid-2021 on Belarus – the world’s second-largest producer of MOP – quickly snowballed into an avalanche of change which has since swept across the traditionally sedate global potash trade.

POLITICAL RAMIFICATIONS
In May 2021 Belarusian President Aleksandr Lukashenko ordered the grounding of EasyJet flight 4978 as it passed over his territory – ostensibly because of a bomb threat – before removing dissident blogger Roman Protasevich and his partner Sofia Sapega from the aircraft.

Western powers were quick to condemn the move and in coming months imposed sanctions on the money-spinning Belarusian MOP export industry, as well as a wide variety of other export goods and named Belarusian executives profiting under Lukashenko’s regime.

The largest issue thrown up by the sanctions was the dissolution of state-run MOP marketing arm Belarusian Potash Company’s (BPC) longstanding agreement with the port of Klaipeda, Lithuania – the MOP major’s primary export hub for global trading – and Lithuanian Railways, which handled trans-shipment.

The sanctions therefore effectively cut off landlocked Belarus’ MOP from the global marketplace – including the key MOP-consuming nations of India, China and Brazil.

With Belarus neutered in the global marketplace, that left Canada and Russia as the two largest producers of MOP – albeit briefly – as in February 2022 the opening shots of the invasion of Ukraine quickly drew global condemnation of Russian President Vladimir Putin and his regime.

Initially potash exports were not targeted under the sanctions, although concerns continued to mount that sanctions placed on the nation by Western powers could make trading with Russia increasingly difficult, notably because of restrictions on bank transactions.

Russian MOP exports declined steadily, and in October 2022 the European Commission’s list of products sanctioned for export from Russia to the EU was extended to include phosphate fertilizers, alongside MOP, nitrates, and nitrogen, phosphorus, potassium (NPK) blends.

Although the sanctions stopped short of banning imports of Russian MOP into Europe entirely, the volume of tonnes declined rapidly.

2022: BOOM
The abrupt absence of much of Belarus’ MOP on the global market – and a decrease in Russian export volumes – led to a period of panic-buying in H1 2022, as importers and farmers rushed to secure tonnes ahead of their crops’ respective application period.

Prices in the key Brazilian import market climbed to $1,250/tonne CFR (cost and freight) by April 2022 – the highest ever recorded by ICIS – and southeast Asia saw offers for both standard- and granular-grade MOP more than triple between June 2021 and June 2022 to $1,125/tonne and $1,200/tonne CFR, respectively.

Other importers – shocked into inaction by the abrupt spike in offer prices and confident they were not sustainable – instead opted to skip that year’s application entirely; relying on the volume of potassium already in the ground to support their crops’ health without a fresh application.

2023: BUST
Throughout 2023 supply issues stemming from sanctions on Belarus MOP exports alongside businesses supporting Russia’s potash exports, were slowly side-stepped as new routes to market were unearthed.

Belarusian MOP made its way to the global market via Russia’s ports and using rail networks into China and southeast Asia in vast volumes.

Although the volume of Belarusian MOP exported to destinations other than China and southeast Asia was limited, Belarusian potash was shipped into Brazil in large volumes – which had an impact on landing prices for granular MOP.

Russian MOP also started moving steadily after buyers found alternative routes to fund purchases outside of sanctioned banks and other financial institutions.

The precise volumes both Russia and Belarus have managed to export is unclear, however, as the nations ceased reporting customs statistics shortly after the latter’s invasion of Ukraine.

Combined with increased exports from other players keen to capitalise on Russia and Belarus’ absence, along with weak demand following the great panic of 2022 and buyers’ expectations of lower offers to come, major MOP players’ 2023 financial results were uniformly and unsurprisingly negative.

BACK TO NORMALITY?
Leading the 2023 results parade was the world’s largest MOP-exporting nation, Canada, where the largest supplier in the world, Nutrien, recorded an 83% slump in net earnings for 2023 year-on-year.

US and Canadian major Mosaic followed, with a 72% year-on-year decline in operating earnings, and then Israel Chemicals (ICL), which logged a 68% fall in operating income.

Nutrien 2023 consolidated results ($m)
	2023	2022	Change (%)
Sales	29,056	37,884	-23
Net earnings	1,282	7,687	-83
EBITDA	6,058	12,170	-50
ICL 2023 consolidated results ($m)
Sales	7,536	10,015	-25
Operating income	1,141	3,516	-68
Adujsted EBITDA	1,754	4,007	-56
Mosaic sales and operating earnings 2023 ($m)
Net sales	13,696.10	19,125.20	-28
Operating earnings	1,338.10	4,785.30	-72
*EBITDA: Earnings before interest, taxes, depreciation and amortisation

However, all three firms remain upbeat on prospects for potash in the year ahead, despite the outwardly costly 2023 decline in earnings.

Mosaic expects strong demand from North America, southeast Asia and Brazil, and increasing stability of supply globally.

Nutrien estimates that full-year global shipments from all sources topped 67m-68m tonnes for 2023, supported by strong consumption in North America, China, and Brazil.

For 2024, the Canadian major is projecting 68m-71m tonnes traded, with a gradual increase in availability from Russia, Belarus, and Laos – more than a return to the pre-sanctions 69m tonnes traded of 2020.

Russia and Belarus continue to increase exports to nations which shun concerns for Western sanctions – notably China, which is receiving large-volume cross-border imports via rail; leaving some MOP players to ponder if Beijing will open talks for the traditional bellwether 2024 import contract at all.

Meanwhile, Potash demand is expected to increase notably in southeast Asia across 2024 on low inventory levels, after buyers stepped back from the market in 2023 following 2022’s vast spike in offer prices.

So far, in Q1 2024 offers at key bellwether destinations including southeast Asia and Brazil have been stable to weak – although the tide is turning as producers are confident a bottom has been reached and the market will move up as seasonal demand returns – albeit to a more ‘normal. level than that seen in 2022’s boom year.

“This is the year of trade flow change – and maybe of stability,” concluded one large-volume MOP trader.

Insight by Andy Hemphill