Thursday December 6, 2012, 4:15am PST By James Wellstead - Exclusive to Potash Investing News
Major potash producers — and the banks that finance them — are sharing their 2013 potash plans, and as China and India account for a combined 30 percent of total global potash shipments, it is not surprising that these two countries dominate the forecasts.
While projections are mixed, all sides appear to acknowledge that there is significant potential for a return to demand in 2013. The question is how and when it will arrive.
Potash producers optimistic
In mid-November, Potash Corporation of Saskatchewan (TSX:POT) announced one of the most optimistic forecasts for overall growth in 2013. At a Morgan Stanley investor conference, PotashCorp CEO Bill Doyle said that global shipments are expected to hit between 57 and 58 million tonnes (Mt) in 2013.
“[W]e see that as a big improvement over this year. And we think 2014 is also going to be a strong volume year,” Doyle said.
Doyle noted that a return in demand from China and India — as well as rapid demand expansion in Latin America — is key to that growth.
Russia’s Uralkali, while confident that Chinese and Indian demand will return, is less certain about an early 2013 spike in demand. Uralkali announced this week that it will cut its potash output by half, to 2 Mt, in the December to March period. CEO Vladislav Baumgertner told Reuters that the move is aimed at reducing excess global supply during a protracted fall in demand.
Baumgertner noted that “[s]tocks will be consumed by the market during the first quarter, and producers will be able to sign contracts with China in March,” Reuters reported.
India’s stocks will also need replenishing, suggesting that new contracts could be signed as early as December. “Stocks in India are not too high and stay on usual levels – of about 1 million tonnes,” Baumgertner also said.
Baumgertner’s confidence could have arisen from the recent sale of Uralkali bonds that can be exchanged for shares of a Chinese sovereign wealth fund worth US$3 billion. But confidence in an exuberant return of Chinese and Indian growth is not as strong amongst a number of banks.
Banks have doubts
Banking giant Credit Suisse is among the most skeptical and has suggested that there are “serious issues[s]” for potash producers heading into 2013 price negotiations with Chinese buyers, Agrimoney reported in mid-November.
While noting the potential for producers to capitalize on growth caused by surging crop prices over the past five years — a trend unlikely to reverse any time soon — Credit Suisse has concerns about the disconnect between crop price growth and potash application.
“To see negative [potash] growth in a period of strong, albeit volatile, grain prices suggest to us that … there is lack of understanding of the merits of using potash in some developing markets, where the growth is supposed to come from.”
Excess supply in China and North America has seen global stocks rise alongside falling shipments. Earlier projections of 50 to 53 Mt worth of world potash deliveries have failed to materialize this year, with numbers likely to fall to 49 to 50 Mt.
In India, a falling currency and evaporating government fiscal support have left many farmers priced out of potash markets. Strong domestic supplies have also kept China out of contract negotiations as stockpiles upwards of 5 Mt were noted in August of this year.
The Bank of America also has voiced concerns over continued Chinese absence. It knocked down its 2013 potash contract price target to $420/tonne from $470/tonne in 2012, Bloomberg reported.
Company news
Verde Potash (TSX:NPK) announced this week that it has successfully processed 42 tonnes of feed material during a four-week test of its potash rock to potassium chloride (KCl) process at FLSmidth’s rotary kiln facility in Pennsylvania.
The Brazilian fertilizer exploration and development company will use the data collected from the study to feed into its upcoming bankable feasibility study, scheduled to come out by mid-2013.
The company also announced that it is in talks with potential counterparties about an offtake agreement for the company’s granular KCl product. While there is no word yet on the potential size or number of buyers, securing customers for an end product would do much to secure future financing for the company’s Cerrado Verde project.
Intrepid Potash (NYSE:IPI) recently began successfully pumping potash-enriched brine from its HB Solar Solution mine, located near Carlsbad, New Mexico, into the first of its newly constructed solar-evaporation ponds.
The development is a “monumental event,” CEO Bob Jornayvaz said, commenting that the process takes “a non-potable water source and injects it into an idled potash mine to recover a resource that otherwise would remain undeveloped.”
“The HB Solar Solution mine project is a key component of our plan to grow our production with incrementally lower cash cost tons,” Jornayvaz added.
Securities Disclosure: I, James Wellstead, hold no direct investment interest in any company mentioned in this article.
