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Potash Fertilizers: The Dangers Brought About by Large Contracts Author/Source: China Fertilizer Network Date: 2020-05-07 Clicks: 54 The large contracts for potassium chloride came to light just before the May Day holiday; followed by a long five-day break, so on the first day back to work, most people were still a bit disoriented. Are there any rebates for large contracts? How many? What’s the price at the port? What about border trade? Have the new prices for Salt Lake been set in May? Are you going to buy it? When to buy? Wait, wait... More details about the large contract haven’t been revealed yet ； As for prices, they are mainly inflated at the moment and are trying to become more realistic; the leading companies are very cautious, and no official prices have been set yet. As for the lower-end products, things are currently just in the stage of various guesses and estimates. Then why was this article written, and what can it achieve? The author has noticed one point that I’d like to share for everyone’s reference: many people in the industry are recalling events from that time when things were unclear and ambiguous. In such situations, \"memories\" aren’t necessarily a good thing – they can turn into nothing but harsh recollections. The large contract in 2016 was worth 219 dollars. On July 14, 2016, a contract for potassium chloride was signed; the CIF price was 219 dollars per ton, which represented a sharp drop of 96 dollars compared to the previous year. Nevertheless, this figure was still slightly higher than the 210 dollars predicted by most industry experts at that time ； When 219 dollars is converted into terms of port costs and market prices, the price of 60% red pigment is roughly equivalent to that cost; the price of 62% white potassium is about 150 dollars higher than its apparent cost. Initially, the market believed that there was some support at the cost level, but the increasing supply of goods along with an unfavorable overall economic environment quickly weakened the sellers’ confidence; in August, the price of potassium chloride at ports dropped by 100–150 yuan ； By September, port prices dropped by another 50–100 yuan, pushing costs back to the level after discounts were applied; during this period, major events such as Yunnan Tobacco’s tender for potassium sulfate and inspections related to oversized cargo transported by road failed to stimulate the market ； In October, the price of potassium chloride at ports saw a slight decline of 20-30 yuan. The prices of bulk goods at ports dropped to near the minimum cost level, but in the second half of the month the prices stabilized, and by the end of the month a slight rebound of 20-30 yuan occurred first in the informal marketplaces. The reasons for the rebound at that time were: there wasn’t much available stock ； Exchange rate fluctuations increase costs ； The difficulties in transportation in Qinghai are beginning to receive attention ； The sharp rise in urea prices has stimulated the release of demand for winter storage. The decline in prices to between 200 and 300 yuan over those three consecutive months prior to that was actually caused by a simple reason: an oversupply and pessimistic expectations across the entire industry. The large contract in 2017 was worth $230. On July 13, 2017, a large contract for potassium chloride was signed; the CIF price of $230 represented an increase of $11 compared to the previous year, which was roughly in line with market expectations ； When 230 dollars is converted into terms of port costs and market prices, the price of 60% red pigment is roughly equivalent to that cost; whereas the price of 62% white potassium is nearly 100 yuan higher than its apparent cost. This large contract was positive before it was signed, but turned out to be negative after that, as once the new costs were determined, downstream companies no longer felt the need to rush into purchases, especially those that already had sufficient stock on hand. In August, the price of potassium chloride dropped by 20–50 yuan, mainly due to weak demand. The reasons for this weak demand include the low cost of potassium chloride and concerns about an oversupply; the overall market conditions in downstream sectors were poor, especially as the operating rates of compound fertilizer manufacturers in regions such as Shandong declined due to environmental regulations; furthermore, reducing prices for promotional purposes was not very effective. In September, prices of potassium chloride at ports continued to fall, mainly due to concerns over an excess supply of ships carrying this product, especially 62% pure potassium chloride; the monthly decline was around 50 yuan. However, as urea and ammonium phosphate prices rose, although the potassium fertilizer market remained sluggish, downstream buyers began to worry that prices might increase. The prices of large red granulated potassium fertilizer produced in the north and white potassium chloride used in cross-border trade increased by about 20-30 yuan, while domestic potassium fertilizer prices remained relatively stable. Throughout October, the price of potassium chloride remained on the rise, with the rebound occurring earlier and more sharply than in the previous year. In particular, the price of 62% pure potassium chloride at ports increased by around 100%, effectively canceling out the losses incurred in the previous two months. This round of price increases began when major port traders stopped selling due to supply shortages, and quickly spread to the border trade and domestic potassium markets; reluctance to sell became the defining theme throughout the fourth quarter. The large contract in 2020 had a value of 220 dollars. In 2018, a large contract was signed for 290 dollars; no such contract was signed in 2019. It wasn’t until April 30, 2020, that a new large contract for potassium chloride was signed. The CIF price of 220 dollars represented a significant drop of 70 dollars compared to the previous contract, but it was still within the range expected by the market ； When comparing the $230 amount to port costs and market prices, the average market price is approximately $100 higher than the apparent cost. In both 2016 and 2017, the market lows occurred in October, at the beginning of the month ； In 2018 and 2019, it was almost always rising except for periods of decline. So, what will be the trend of potassium chloride prices in 2020? Since this is all about reminiscing, it depends on whether people value the memories from 2017 or those from 2016 more. Of course, everyone hopes it’s 2017, because there’s no sign of a sharp drop and hope remains ； However, given the current market situation, unfortunately it seems more likely that the future will resemble 2016. Firstly, there is an excessive amount of goods stored in Hong Kong. The bonded goods will begin to pass through customs in about a week, and the total amount of goods stored in Hong Kong could rise rapidly to 3.7 million tons. Moreover, the international market conditions are poor; it is said that foreign companies have already started preparing to send more goods to China ； Secondly, due to the impact of the pandemic, grain prices are rising, but demand for fertilizers may lag behind, which could further increase competitive pressure. What the author has listed above is merely an analysis of the future market from the perspective of historical comparisons between master and slave systems, yet it still cannot be ignored. So, are you ready? (Adu)