Chinese Potash Demand Becomes Stronger with the Price Rising Stably
After long-term regulation of global potash market in 2008 and 2009, it is expected generally that the global potash market is recovering in 2010 with the demand increasing. At the same time, Chinese potash market, experiencing stronger demand and rising price, became increasingly prosperous as well.
At first, Chinese government carried out favorable policies for agriculture, which bring confidence to fertilizer market. According to the government work report delivered at the beginning of 2010, the government would keep on directly subsidizing grain producers and raise subsidy for means of agricultural production, growing superior grain cultivators and machinery and tools; the Finance Department planned to provide RMB133.5 billion ($20 billion) this year as subsidy which would be RMB6.04 billion ($909 million) more than the total subsidy last year; the lowest purchasing price offered by the government would be raised. A lot of agriculture-friendly policies have been carried out to benefit farmers.
On 11th of August, the State Council announced that the government decided to allocate fertilizers as subsidy worth of RMB11/ha ($1.64/ha) for rise planting zone in eight provinces in south of China in order to solve the problem on planting second rice in autumn. The policy benefits potash market to large extent which had been weak in past two years. Farmers usually stop purchase of potash in August. But stimulated by the subsidy, farmers bought potash so actively that the monthly sale of potash in August reached the highest level in the year.
Second, potash supply from import has increased while domestic supply keeps stable. According to the custom, China had imported 2.78 million ton MOP from January to July, among which 1.91 million ton were imported by ship and 870,000 ton by train. It is estimated that China will import more than 4 million ton all the year against 1.98 million ton last year. Import by train plays an important role on adjustment of potash import volume. During the first 7 months, import volume by border trade reached 870,000 ton which account for 1/3 of total import volume. But border traders only imported 31,000 ton and 61,000 ton in July. Since July, severe weather and transportation problem in Russia caused no deal from border trade.
Domestic production keeps stable this year. It is expected that Salt Lake Group would increase the production this year against last year. But some small-scale potash producers had to lower the production because of heavy rainfall this year. All in all, the production of potash this year is expected to be 4.5 million ton, similar with production last year.
Third, high operating rate of compound fertilizer production stimulates potash demand. It is the busy season for compound fertilizer production in autumn. Some large-scale compound fertilizer factories keep the operating rate as high as 60%-70% and most of others keep 50%. With the prices of raw materials increasing, compound fertilizer producers keep raising the selling prices.
At last, the prices keep stable now. In the first half year, domestic potash market kept weak. Active purchase by compound fertilizer enterprises at the end of last year finished business in spring, which caused weakness in busy season. The price of potash declined for a long term.
However, once the price declined below the cost, the market started to recover. Compound fertilizer companies’ purchase from July made potash market recover rapidly. The price of Russian red potash has increased from RMB 2300/t ($346/t) which was the lowest point in H1 to RMB 2550/t ($383.8/t) right now. Because of the rising price and low inventories, some compound fertilizer producers and chemical producers in East and North of China prepare to reserve potash during slack season.
(Source: China Agri-Production News)