State of Potash

This report is based largely on two presentations by PotashCorp’s CEO – Jochen Tilk – which are: “Goldman Sachs Basic Materials Conference” of May 18, 2016 here ; and “BMO Capital markets Farm to Market Conference” May 19, 2016 here.

Why do I use these?  Well, PotashCorp is basically the provincial leader in potash – that’s why.

State of the market

  • Prices have bottomed out
  • Potash status 1
  • The U.S. market had been a premium market for potash; it opened up at $410 Midwest prices and then ended up almost $200 below that 12 months later and the premium had all but disappeared, a significant amount of imports had come in
  • Brazil became more spot price and lower
  • The Chinese have a lot of inventory so negotiations have prolonged, but that also means producers are settling easy for low prices (a country consumes approximately 15 million tonnes of potash, 25% of the world potash consumption of 50 or 60 today, and it domestically produces half of that 7 million to 8 million and then it imports the other half)
  • Inventory has been flushed from system
  • Farmer economics are good in the USA – better than last year and much better than the year before
  • Potash status 2
  • Brazil crops look good and they use US $d
  • Potash status 3
  • Global maximum production is 65-million tonnes with demand at 58-61 million tonnes
  • Consumption to grow by approximately 2%, maybe 2.5%. So by 2020, it would be approximately give or take 70 million tonnes.
  • Potash status 4
  • Incremental capacity growth such as a project by K+S, Legacy, and there’s a European Russian producer, EuroChem. And we incorporate that and some other gives or take.
  • Some capacity coming off line – about 7-million tonnes
  • Potash status 5
  • So in 2020, we are in a situation where the margin between operating capacity and consumption is about 5 million tonnes, 78 to 75.
  • Potash status 6
  • Potash status 7

 

PotashCorp’s world

  • They will be the lowest cost producer on earth – Rocanville starts at about $70 U.S., and eventually gets to $45 or $50 for cash costs per tonne of production
  • Potash status 8
  • My thought going forward, “PotashCorp – being the lowest cost producer in the world and thus able to accept a lower floor price for potash – could therefore switch from ‘swing producer’ to run full-out all of the time and let others be the swing producer” for the US markets. But, they would still need to work with their partners in Canpotex for off-shore markets, and their partner’s production costs are higher, so this strategy may not work off-shore.  Yes, they could dissolve or pull-out of Canpotex, but Canpotex is a massive and valuable collection of infrastructure with rail cars, ports, ships, warehouses, and sales staff.

About prosperitysaskatchewan

Consultant on Saskatchewan's natural resources.

Posted on June 10, 2016, in economic impact, potash. Bookmark the permalink. Leave a comment.

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