A Serious Discussion on the Rise in the Price of Potassium Chloride (I)

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A serious discussion on the rise in the price of potassium chloride (Part 1) Author/Source: China Fertilizer Network Date: 2020-08-24 Clicks: 85 The price increase is justified, as it has remained at a low level for a long time. This year, the CIF price for large-scale sea shipments of potassium chloride is $220 per ton. Based on the average exchange rate over the past few months, the apparent costs at ports are approximately 1,800 yuan per ton for 60% red powder, 1,850 yuan per ton for 62% white potassium chloride, and 1,900 yuan per ton for 60% red granules. After applying discounts for rapid delivery, the lowest costs are around 1,650 yuan per ton, 1,700 yuan per ton, and 1,750 yuan per ton respectively. 　　The standard calculations in the industry take into account only fixed costs such as taxes, lump-sum fees, and packaging costs, while ignoring soft costs such as those related to operations, capital, warehousing, and risks; therefore, it is more reasonable to consider profits and losses based on apparent costs. Historical price trends show that when market conditions are favorable, the price of potassium chloride is higher than its apparent cost; whereas in poor market conditions, it remains around the apparent cost level or between the apparent cost and the cost after applying the expedited rebate. Occasionally, the price of potassium chloride is also lower than the lowest cost after applying the expedited return discount; in such cases, importers become not only \"transporters of potassium chloride\" but also \"volunteers\". 　　Before this rebound, the general reference prices for 60% red pigment, 62% white potassium, and 60% bright red particles at the port were around 1,600 yuan per ton, around 1,780 yuan per ton, and around 1,850 yuan per ton, respectively. It can be seen that 60% of the red powder varieties suffered severe losses, 62% of the white potassium varieties managed to hold their ground, and 60% of the dark red granule varieties were only slightly better than the white potassium varieties. And this situation has persisted for almost three months now; the pressure on importers is imaginable. In particular, it is understood that port storage costs this year will be even higher than in previous years, adding to the pressure amid poor sales and slow pickup rates. 　　Following this half-month period of recovery, the current reference prices for new transactions of 60% red pigment, 62% white potassium, and 60% bright red particles at the ports have risen to around 1650–1700 yuan/ton, 1780–1830 yuan/ton, and at least 1880 yuan/ton respectively, indicating that they have initially managed to get out of a loss-making situation. Rising prices due to speculation is normal, as there isn’t enough actual support. Although this rebound does have some actual support, it is mainly driven by speculation. Since the autumn market is indeed an important trading season, demand for potassium chloride in this period is rather modest. Most compound fertilizers produced are those with high nitrogen and phosphorus content but low potassium content. Additionally, the total inventory in ports remains at 3.4–3.5 million tons, and large-scale contracts are still in effect. The international market situation is also not very optimistic; therefore, there is insufficient support for an increase in the price of potassium chloride. Therefore, at the initial stage of price increases, my advice was to take the opportunity to sell inventory, adhering to a short-term strategy – and this remains unchanged to this day. 　　However, after reading the previous content on why price increases are reasonable, I believe everyone can understand the concept of artificial price hikes. Furthermore, if it’s overcooked, the worst that will happen is that it returns to its original state; given the current market situation, there’s indeed no need to worry for now that prices will get any worse. If we’re going to fry it, then let’s do it. It’s already been fried, so now let’s see what can be used for frying and how to do it. Additionally, we can use this to try and determine how high the temperature will reach and for how long the frying process will last. 　　The catalyst for the price surge was the national reserve. Firstly, the total national stock of potassium chloride remains unchanged, but the distribution has changed; instead of Sinochem holding 1.1 million tons and Sinograin holding 400,000 tons in previous years, now Sinograin holds 600,000 tons, Sinochem holds 600,000 tons, and Sinochem Construction holds 300,000 tons. Additionally, 15 regional targets have been designated. As a result, not only do various companies need to make adjustments, but there may also be some interconnections between them ； Secondly, and this is a more direct but also normal approach: where there is inventory, there are inspections. Therefore, companies need to conduct inventory checks in order to prepare for these inspections, and as a result sales are suspended at such times; at least large orders cannot be processed for the time being. Suspension of sales has always been the ultimate trick to drive up the price of potassium chloride. 　　The surge in prices came from that white black swan. Originally, suspending sales for inventory checks was a normal, short-term measure, but news of a major strike by workers at the Belarusian Potash Company led to an extension of the suspension period. The status of Belarusian potash fertilizers and their impact on our country were already discussed by the author in the previous article, so there is no need to repeat them here. Originally, the seller only wanted to put the buyer on edge, but this time the seller became nervous as well; however, this nervousness is different from that of the buyer. What worries them is whether there will be an opportunity for further price increases. Describing this nervousness as excitement might be more accurate. 　　The author believes that the strike by workers at the Belarusian Potash Company will not last long. In fact, not only has its management issued an urgent statement on its official website saying it will strive to ensure the fulfillment of contracts, but it is also understood that the general strike in Belarus has entered a new phase: on the one hand, new workers from other companies are joining the strike, while on the other hand, some of the companies that were initially involved in the strike have resumed normal operations. As a key industry for Belarus’ economy, potassium fertilizers deserve significant attention from the authorities. 　　Belarus, under Lukashenko’s leadership, has achieved remarkable progress and notable results, and is indeed a friendly partner of our country ； After each election, there are always some protests by the opposition in the region, with evident influence from foreign hostile forces. This time, Lukashenko’s so-called rival in the elections, the opposition leader Tikhanovskaya, is currently in exile abroad; she even goes so far as to call for a nationwide strike at the expense of the interests of the nation. We should believe that the Belarusian people will ultimately make the right choice. 　　Since the two key factors behind the price surge are short-term factors, looking back at this rebound in potassium chloride prices, it is likely that prices will stabilize and start to decline in the near future; however, some of the gains achieved will still remain. It is expected that this rebound will continue until early September, by which time the price of 62% white potash at the ports will be in the range of 1,800–1,850 yuan per ton; higher prices will be the standard rate, while lower prices will serve as a reference for large-scale transactions. As for the long-term trend, we will take a look at the analysis in the next article, “Talking Seriously About the Rise in Potassium Chloride Prices (Part 2).” (Adu)