PotashCorp on May 20 indicated its intention to curtail 2009 potash production by an additional 400,000 mt, bringing the total reductions in production to 3.9 million mt year-to-date and 4.8 million mt for the 2008/09 fertilizer year.
“Our commitment to our long-held potash strategy remains rock solid,” said PotashCorp President and CEO Bill Doyle. “While short-term demand deferrals are uncomfortable, we always manage with a long-term view. Demand will inevitably return, and – regardless of when that happens – we will be patient and preserve our assets until they are needed.”
PotashCorp makes this announcement as major global potash buyers and sellers are expected to meet at the IFA meeting in Shanghai. Doyle expects major agreements with China and India to come before the end of the second quarter. He told analysts last week that the Chinese are expected to buy product once their inventory levels drop to 2 million mt. Assessments are they may be around 3 million mt now.
Doyle also expects China to rebound next year, saying they may double their take or go as high as 13.7 million mt. He expects China to take about 5 million mt this year, or about the same as last year, which would be another year below their trend line.
Harry Wang, Sinofert Holdings senior vice president and executive director, speaking at the BMO Capital Markets Agriculture, Protein and Fertilizer Conference on May 14, said that China’s normal usage is about 10 million mt, and that it took 9.5 million mt in imports in 2007 and 5.5 million mt in 2008. He said that about 3.5 to 3.8 million comes from domestic Chinese production, with the remainder coming from imports. He said China realizes that it will need to import some 70 percent of its potash for years to come. While it hopes to become self sufficient in the product, as it is in nitrogen and phosphate, he said the goal is about a 10 percent increase in domestic production per year. While current use is 10 million mt, he said that Chinese farmers need to use more potash and use 22-23 million mt per year.
Like U.S. farmer psychology, Wang said the Chinese also expect potash prices to drop as they have with nitrogen and phosphate. He noted that a Chinese potash producer recently dropped its prices about $100/mt, to $485/mt. He said such a drop has a definite impact on negotiations as it makes it difficult to increase prices.
Doyle said India is in a more dire situation regarding potash than China, which might prompt it to conclude its contracts first. Still, he predicts Indian imports may be down in 2009, to 5 million from 2008’s 6.3 million mt. He expects India to rebound again to 6.3 million mt in 2010.
Doyle, like other producers, is adamant that prices must remain firm or higher so that the industry can build brownfield and greenfield projects that are going to be needed for future demand.
The U.S. retail potash pipeline should be about 95 percent empty by June 30, according to Doyle, speaking to an analysts meeting May 20. He said refill should begin in July-August, and that there will be no price cuts to encourage it. Doyle said with about a 35 percent drop in consumption this fertilizer year, corn acreage and potash use should be up in the next fertilizer year. He added that corn acreage could hit 90 million acres, up from an expected 82-84 million this year.