Potassium sulfate: As long as you are well, it’s a fine day

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Potassium sulfate: As long as you are well, it’s a fine day. Author/Source: China Fertilizer Network. Date: 2019-08-28. Clicks: 1. With the \"Golden September and Silver October\" period approaching, the market situation for potassium sulfate has not been very favorable recently, with prices showing a slight downward trend. Is there any possibility of a price rebound in the future? Will it continue to fall? Let’s analyze it step by step. 　　There is room for cost reduction; no significant decrease is expected for now. Based on the current prices of potassium chloride and the by-product hydrochloric acid at ports, the average cost of 50% powdered potassium sulfate in Mannheim is around 2,700 yuan per ton (the same unit is used throughout). According to data from Zhongfei Network, the current average factory price for 50% powder in China is around 2,850 yuan, with actual transaction prices mostly falling within the range of 2,650–2,850 yuan. Depending on the operating rates of various manufacturers, as well as the specifics regarding raw materials and by-products, while a very small number of manufacturers struggle to operate at break-even, most of them can achieve profits in the range of 100 yuan, with some even reaching over 200 yuan. However, most manufacturers still say it’s not profitable: “Think about it, how much profit is there per ton of urea?” What is the annual production capacity of a urea plant? Are ammonium phosphate and compound fertilizers similar as well? But we produce only a few tens of thousands of tons per year; with such a low profit per ton, we’re already in the red! ” 　　In fact, the key lies not in comparison, but in risk. The long-term trend for the price of potassium chloride is downward; given this, potassium sulfate, whose demand has recently been weakening and whose supply exceeds demand, is likely to continue to decline. However, on the one hand, the price of potassium chloride is unlikely to fall in the near term, with occasional upward fluctuations; on the other hand, due to increased environmental regulations, the operating rate remains low, and the selling pressure on the by-product hydrochloric acid has risen generally, leading to an increasingly severe situation of prices being lower than cost. Therefore, from a cost perspective, there is room for a price reduction on Mannheim potassium sulfate, but it is likely to be limited; in fact, for some companies it could even result in losses. 　　The operation rate is low, and there is no pressure on inventory at present. Data from Zhongfei Net shows that the operation rate in the Mannheim industry is currently around 60%, which is only about 1 percentage point higher than the same period last year; overall, it remains low. Looking at the period from January to August, this year’s average operating rate was around 54.6%, compared to 58.4% last year; this represents a decrease of about 4 percentage points on an annual basis. In terms of physical output, this translates to roughly over 100,000 tons. At the same time, the utilization rate of potassium sulfate in the water-salt system is also low, and Luoyang Potash will not be able to resume production until early September. Therefore, on the one hand, production has declined; on the other hand, some manufacturers had good sales of water-soluble fertilizers and for export in the earlier period, so there is currently no inventory pressure for potassium sulfate manufacturers. 　　Given the current market conditions, it is expected that the operating rate of the potassium sulfate industry will remain low, which will provide some support to prices. However, there is one new factor that the industry should be aware of: new production capacity is still planned to come online. At present, these new production capacities are mainly located in Heilongjiang, Inner Mongolia, Xinjiang, Guangxi and other places. Some represent expansions of existing facilities, usually on a modest scale, while others are entirely new capacities, including some truly large-scale ones. As far as the author knows, the pace at which these new production capacities enter the market varies; although the introduction of those \"giants\" will take place next year or even the year after, there is still a possibility of changes in the overall market landscape. 　　The demand pattern has changed, but there are still alternatives. Whether it is due to plans for zero or negative growth in fertilizer use, or as a result of economic considerations, it is clear from this year’s market trends that the demand structure for potassium sulfate has changed. In both industrial and agricultural sectors, the sales of 52% fully water-soluble potassium sulfate in Mannheim almost dominate the market; the 50% grade has become completely secondary. The sales of potassium sulfate in the water-salt formulation format are also facing challenges, with prices remaining low and unable to return to the normal premium level associated with Mannheim potassium sulfate. 　　The above refers only to potassium sulfate itself, and the overall situation is also not very optimistic. Due to the large surplus of fertilizers in the spring market, fertilizer performance was poor in the summer and autumn markets. Currently, prices of all three key raw materials – nitrogen, phosphorus, and potassium – are falling. Coupled with the damage caused by disasters such as typhoons, floods, and pest infestations, there is a lack of confidence in the market among downstream users, as well as financial constraints; therefore, the situation regarding winter stockpiling this year is likely to be quite challenging. 　　Fortunately, the export volume of potassium sulfate in the first half of the year was considerable, and the demand for tobacco fertilizers in the second half of the year also provided some support for potassium sulfate, so the market for this substance still has a way forward. It is understood that after various difficulties, the bidding process for potassium sulfate for Fujian Tobacco was ultimately won by Luo Potash, at a price of 2,950 yuan. This price is slightly better than the initial expectations, though it is still significantly higher than the market price. So far, the winning bid prices for tobacco tenders across various regions have been higher than market prices; this has also led to high expectations within the potassium sulfate industry regarding the largest tobacco tender in Yunnan that is set to take place in September. 　　Overall, although there are no major positive factors in the potassium sulfate market at present, there are also no absolute negative factors. Although prices have shown a downward trend, there isn’t much room for further decline at the moment; it is recommended to closely monitor changes in production rates and inventory levels in the coming period. 　　(Adu)