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Waiting only for the order from the major contract – the competition over potash fertilizer prices begins. Author/Source: China Fertilizer Network. Date: 2020-03-31. Clicks: 50. In fact, the title of this article is still a pseudo-problem; firstly, the major contract has not yet been signed, and it’s unclear when it will be signed. Secondly, even so, the price of potassium chloride is already falling. Why is it declining? The current international spot price for potassium chloride is around $220–230 per ton CIF. Based on shipping costs and historical trends, if large-scale contracts are signed now, the CIF price in China should not exceed $220 per ton. Although international potassium chloride prices are at their lowest levels in over a decade, there is little room for further decline; from a broader perspective, this weak trend is likely to continue for some time yet. Assuming the contract price is $220 per ton, and using an exchange rate of 7.1, the fixed cost of white potassium at the port would be around 1,880 yuan per ton. This represents a significant price difference of 300 yuan per ton compared to the current port prices. According to statistics from China Fertilizer Network, currently, the regular port inventory stands at just over 1.3 million tons, which is already a very low level. However, the total volume of goods in bonded warehouses exceeds 2.3 million tons. This figure is comparable to the total imports during the entire second quarter of last year, and it is significantly higher than the figures for the second quarters in previous years; it is essentially equivalent to the combined imports during the second and third quarters back then. In other words, not only is there no “gap period” as usual right after a large contract is signed, but the transition from insufficient inventory to sufficient inventory occurs within just one threshold level. Both costs and supply-demand conditions are clearly unfavorable to prices; therefore, it can be concluded that once a large contract is signed, the price of potassium chloride will surely fall. As for the potassium sulfate market, the operating rate is gradually recovering, and the prices of by-products are fairly stable; however, demand is bound to decline in the current economic environment. Therefore, should the price of potash, which is a key cost factor, drop significantly, it will be difficult for potassium sulfate to remain unaffected. A mysterious large contract? It has been one and a half years since the last major semi-annual contract was signed. This contract, which faced delays of a year, not only resulted in the expected price dropping from $260 per ton to no more than $220 per ton, but also led to the regular port inventory falling below 1.5 million tons. Is it better to sign early or late? Is it possible to sign it earlier? Will the price be lower or higher if it’s signed later? Despite certain probabilistic tendencies, it can only be said that everything remains uncertain. Just like this pandemic – no one can say exactly how it started or when it will end, but one has to stay vigilant and take preventive measures every day. In any case, the supply from China is somewhat tight, so it’s necessary to sign large-scale contracts; even though the off-season is approaching soon, we’re not in a hurry” ； Foreign companies can limit or reduce production, but how long can they hold on in the face of demand affected by the pandemic, especially with the loss of China as their largest customer? They can only pretend not to be in a hurry! Therefore, the market still needs to be prepared for large contracts being signed in April. How to tell in the later stages? If no large contract is signed in April, we’ll have to think about what to do next at that time. Given the potential benefits during the upcoming off-season and the risks involved in signing a contract, the market must remain vigilant at all times. Even if no contract is signed in April, one still has to be cautious in May; and in May, one must be cautious for June as well... This, in turn, suppresses demand ； Moreover, the prices of nitrogen and phosphorus have been poor recently, and the future for downstream compound fertilizers does not look very promising; therefore, supply is likely not to be in short supply. Therefore, even though large-scale contracts are continuously postponed, unless there is strong evidence indicating that they will not be signed for a very long time, the price of potassium chloride can only experience a gradual decline or occasional, regional, and limited fluctuations. If the deal is signed soon, then as mentioned earlier, the theoretical drop in price could be around 300 yuan per ton. Moreover, in terms of supply and demand, there is a situation where supply increases sharply during the off-season. By then, the price of potassium chloride will only depend on how quickly it declines. Potassium sulfate is bound to be affected, but at least for now, the order schedules of manufacturers in Mannheim are mostly set for around mid-April or even May. There will still be a long period of demand for water-soluble powder in the coming time, and Luo Potash will also enter its summer maintenance period in the near future; therefore, the slowdown in potassium sulfate prices will be relatively slower. Only then did the topic truly come into play; that is, upon the command of the master contract, the “slide-down” competition between potassium chloride and potassium sulfate commenced. Some in the industry believe that the proportion of white potassium and large-grained potassium among the goods subject to duty-free treatment is not clear; it might be small, so even if large-scale contracts are signed, they may not have a significant impact on the market. Firstly, even if this ratio is low, it can’t be excessively low ； Secondly, demand in the later period is gradually entering the off-season, while the supply of domestically produced potassium remains assured ； Third, the cost has decreased significantly; this fact remains unchanged ； Fourth, at the very least during the initial period, the psychological impact cannot be ignored. In summary, although there are no signs indicating that prices will quickly fall to new cost levels, the direction of the pullback is largely determined. For downstream players, they should adhere to the principle of purchasing only as needed over the next one or two months. Manufacturers engaged in long-term production must also be wary of potential short-term shortages of supplies due to lack of contracts; in such cases, it is advisable to maintain an appropriate level of inventory, based primarily on their own cash flow situation. (Adu)