Spend Matters welcomes another guest post from Monika Sosnowska of Mintec.
Many of the celebrations at this time of the year will be accompanied by the excitement of fireworks. The main component of fireworks is gun powder, of which 75% is made out of potassium nitrate. Potassium belongs to the group of chemical compounds called potash and therefore its price depends largely on the potash market situation.
In addition to potash being used in fireworks production, it is also used as a feedstock for crop fertilisers. On average, about 85% of potash produced in the US is consumed in the form of fertiliser. When demand for food and biofuels grows, the consumption of potash also goes up. The current global consumption is about 50m tons per year, but it is predicted that it could reach 60m tons in 2014.
Even though consumption is expected to rise next year, a slowdown of global demand over the last two years has caused potash prices to fall between 5% and 15% since the beginning of the year. This drop in demand has been most marked in India and China, both major potash consumers.
In India there has been excess supply, which together with government subsidies encouraging the use of nitrogen-based fertilisers rather than potash has led to a fall in import demand. In China, there has also been a reduction in imports due to an increase in domestic production. Chinese potash production is estimated to have increased to 6m tons in 2013, up 35% year-on-year.
The global potash price situation has also been affected by changes in the marketplace itself. Canada, Russia, and Belarus contribute to about 66% of global potash production. World potash production and export is dominated by two large unions based in these countries. The Belarusian Potash Co. represents a trading partnership between two companies: Russian Uralkali and Belarusian Belaruskali. The other union is Canpotex, a union of three large potash producers based in Canada and the US (PotashCorp, Agrium Inc., and the Mosaic Company).
In July this year, Uralkali and Belaruskali ended their trading partnership, causing the collapse of the Belarusian Potash Co. That resulted in a less monopolised market situation, which in turn caused increased competition between the potash producers, bringing about a drop in prices worldwide. Additionally, Uralkali has started to increase its production capacity, adding to the global oversupply. Uralkali’s production is estimated to be 15% higher year-on-year in 2013.
So will the lower prices drive increased demand? Uralkali’s investment in production clearly indicates that they think so. The good harvests seen in 2013 mean that soil will need to be enriched and therefore there is a higher usage of fertilisers predicted for 2014. So it looks possible, but the effect on global prices will depend somewhat on the level of production in China and India and their respective import demand.
From all at Mintec we wish you a happy and prosperous New Year!