Thread Content
Variables are coming! Potassium chloride “Invincible in the East”! Author/Source: China Fertilizer Network Date: 2020-03-24 Clicks: 22 As the saying goes, \"Times have changed.\" In the past, we kept emphasizing that it was time to sign large-scale contracts for potassium chloride – both to ensure smooth spring plowing activities and to curb price increases. However, with new variables emerging, it can be said that we are now in an unbeatable position in these negotiations; there is more flexibility as to whether to sign the contracts early or late. What is a variable? According to statistics from Zhongfei Net, by mid-March, the stock of conventional potassium chloride at Chinese ports had dropped to around 1.5 million tons. This figure is far lower than the average of about 2.43 million tons for the same period in the previous four years, and happens to be equivalent to the total amount in national reserves. So, under normal circumstances, there isn’t much potassium chloride available for sale at the ports anymore. Of course, what was mentioned above is definitely not the so-called “variable of the Invincible Easterner”. Let’s take a look at another aspect of the potassium fertilizer market: data from Zhongfei Net shows that domestic prices for potassium chloride have declined slightly recently. In all markets except those in the Northeast, prices have largely returned to their levels before the rise, and prices in the Northeast as well, including those for 60% red granules, are also gradually falling. With the regular port inventory having dropped to such low levels, the price of potassium chloride has not continued to rise; instead, it has gradually returned to normal. What does this mean? Although there are concerns regarding the signing of large contracts and significant cost reductions, it is well understood that supply and demand determine prices, and essentially, the demand in spring has already been largely met. So it is the combination of the two that the author really wants to emphasize: although there isn’t much “ammunition” left, we have successfully passed the \"dangerous period\" regarding fertilizer use. How confident are we? Spring has not yet fully ended, and spring and summer may merge again; can we rest easy once the \"dangerous period\" is over? It’s not certain, but it’s more or less the case. Firstly, if a critical moment arrives, the 1.5 million tons in national reserves are still in the form of spot goods. Given that the average monthly import volume of potassium through ports in the second quarter of recent years has been less than 600,000 tons, these reserves would be sufficient to last for more than two months ； Secondly, there are currently over 2 million tons of potassium chloride in the bonded warehouses. For foreign companies, the cost of re-exporting these goods cannot be ignored, and moreover, prices in the surrounding markets are not high either. Therefore, once new large-scale contracts are signed, these goods can be quickly converted into supply available for sale ； Third, the production and transportation operations of the major potassium chloride plants in Qinghai are running well, with no signs of production cuts at present ； Fourth, in the early stage, the delay in signing large-scale contracts with China exacerbated the cautious attitude in the spot market, leading to continuous price declines. Now, with the severe pandemic spreading across the world, demand has been further hit, and international suppliers are under even greater pressure; therefore, there is an urgent need to sign large-scale contracts with China in order to stabilize the market. If large contracts had been signed earlier, perhaps the Chinese side would have made appropriate concessions out of a concern for security, by signing such contracts or accepting a higher price” ； Now, due to changes in the situation, if large contracts were signed earlier, it would only be possible if foreign companies agreed to the low prices we offered. Based on international spot market prices and trends, this price should not exceed $220 CIF. Will there be any variables? There will still be variables, and that is the late signing of large contracts, arriving at a time when we are truly at our wits’ end. Perhaps foreign companies will give it their all and fight to the end against us, or perhaps the pandemic will become severe enough to affect production and maritime shipping. In any case, we still rely on imports to the extent of 50%, and this reliance isn’t enough to give us a competitive advantage. It’s hard to say what will happen to prices if no large contracts are signed by the second half of the year – they might continue to drop significantly. And before that, domestic prices are likely to rise significantly. If it’s not late enough, then the price of large contracts can only be lower, and this doesn’t constitute a variable with regard to the ongoing expectations of price reductions. However, the supply of goods in the domestic market is actually quite tight; therefore, once a large-scale contract is finalized, its execution will be delayed somewhat. When domestic demand increases again, price fluctuations may occur. But, as has been the case recently, such fluctuations are likely to remain limited due to the expectation of low prices from large-scale contracts, so they are unlikely to be significant or long-lasting. Moreover, border trade imports continue, and they may even become a focus of the market at that time. In short, it is not easy to find the optimal balance among price, quantity, benefits, and safety. We should simply adhere to the principle of giving top priority to fertilizer safety, second priority to financial benefits, first priority to reasonable prices, and second priority to low prices. I’m looking forward to a new large contract being signed in the near future! (Adu)