All Posts from February 18, 2022

Potash Supply Anxieties Ratchet Up as Force Majeure Declared on Belarus Potash

JSC Belarusian Potash Co. (BPC) notified customers that Belarus producer Belaruskali OAO on Feb. 16 told the company that force majeure conditions were forced upon it after it could not find alternatives to railing product to the Lithuanian port of Klaipėda, according to reliable sources, citing a notice from BPC.

While widely anticipated by most market participants since Lithuania halted the transit of Belarusian potash via its territory at midnight on Jan. 31, the Belarusian declaration of force majeure has ratcheted up global supply anxieties that already were being driven by U.S. and E.U. sanctions on Belarus, pushing soaring global potash prices still higher.

Belarus potash typically accounts for around 15 percent of global potash exports, but is now effectively out of the market.

This week, Canpotex settled new standard potash supply contracts through the end of this year with India’s biggest potash importer, Indian Potash Ltd. (IPL), and China’s potash buying committee at $590/mt CFR – a price hike on last year’s contract prices of $145-$310/mt CFR and a $343/mt CFR, respectively (see Markets).

ICL Ltd. also has agreed to the same price for standard potash deliveries to its customers in China for deliveries to the end of this year.

“Global potash contracts have settled at the highest price since 2008, ensuring another year of pricey inputs for farmers and strong earnings for producers,” said Green Markets Research Director Alexis Maxwell.

“U.S. sanctions on Belarus eliminated a key competitor – about 15 percent of the global traded market – for publicly traded potash producers Nutrien, ICL, and K+S, with no readily available alternative supplier waiting in the wings,” she said.

Last year, BPC was the first producer to sign new contracts with China and India.

BPC, in a statement sent by the company to its Brazilian customers on Feb. 16, said it won’t be able to meet contracts due to sanctions imposed on Belarus by the E.U. and the U.S., but that it was doing “what’s possible to find a solution to the supply disruption, “according to a Bloomberg report, citing Brazilian newspaper Valor Economico.

Brazilian farmers already are facing shortages of key fertilizer nutrients.

Russian fertilizer producers have said they will double their supplies to the country, according to a Reuters report, citing Brazilian President Jair Bolsonaro after he had attended a Russian-Brazilian business conference in Moscow on Feb. 16.

Brazil depends on imports for 95 percent of its potash, last year importing some 12.8 million mt, according to Trade Data Monitor. Of this total, 2.4 million mt, or some 19 percent, came from Belarus.

Nutrien Ltd. Interim President and CEO Ken Seitz told analysts at a company earnings call on Feb. 17 that with what Nutrien was seeing in the market “it is absolutely the case that some traditional BPC customers are inquiring about volumes, and it is also the case we are seeing less BPC volumes shipping at the moment.”

Seitz said Nutrien plans to boost its own potash sales volumes to 13.7-14.3 million in 2022, up from 2021’s 13.6 million mt. He said it may produce another 500,000 mt in the second-half if demand warrants. However, he said the company would only proceed with a 5 million mt brownfield expansion if it sees prolonged challenges in Belarus. Nutrien puts current capacity at 18 million mt.

BMO Capital last week warned that Belarusian potash mines may soon cease production after the firm spoke with various potash suppliers, according to a report in real-time financial news publisher The Fly (GM Feb. 11, p. 1). BMO Capital analyst Joel Jackson had understood the last shipment from the potash mines in Belarus to Lithuania was over a week previous and that he would “not be surprised to see the Belarusian potash mines” stopping production “any day.”

The Lithuanian government decision to terminate Lithuanian state-owned railway Lietuvos Geležinkeliai’s (LTG) contract to transport Belarusian potash to Klaipėda port effectively blocked the export shipment of around 90 percent of Belarus’ potash (GM Jan. 14, p. 1). Lithuania’s decision was taken due to “national security concerns.”

There were reports late this week that Russian President Vladimir Putin has ordered the building of a new port near St Petersburg to handle Belarusian potash shipments, according to a Bloomberg report, citing Belarusian President Alexander Lukashenko during a televised joint news conference in Moscow on Feb. 18.

According to Lukashenko, Belarus expects to start loading “millions” of tons of cargo at the new port in 12-18 months. He said Belarus may not renew potash shipments via Lithuania and Ukraine.

There were also reports that Russia plans to start rail shipments of fertilizers from Belarus this year, according to an Interfax report, citing Russian Deputy Transport Minister Dmitry Zverev. The minister was speaking at a meeting of the State Duma Energy Committee on Feb. 17, convened as part of a discussion on a bill concerning ship-or-pay contracts for coal shipments to ports in the Far East.

According to the report, Zverev said such terms could be applied to transit freight from Belarus. He pointed to the fact that Belarus signed ship-or-pay contracts with Russian railways and Russian seaports in February 2020 for oil freight. Starting this year, there will additional types of freight from Belarus, including fertilizers, he said.

According to the minister, it will be possible to receive an additional 2.15 million mt for the Russian railways and the same volumes for the ports this year. However, even if it proves to be feasible, this is just a fifth of  the 11 million mt/y or so of potash that Belarus previously transported via Lithuanian railways via Klaipėda port.

Certainly, market participants and analysts have questioned whether sufficient spare transshipment capacity is, and can be, made available at Russian ports to handle an additional 10-12 million mt/y of Belarusian potash.

Belarusian Minister of Foreign Affairs Vladimir Makei this week had claimed agreements had been reached with Russia for Belarus to use Russian ports for the transshipment of potash and other Belarusian cargo, according to a BelTA report, citing comments made by the minister at a press conference in Minsk on Feb. 16.

Like Russia’s Deputy Transport Minister, Makei did not specify through which Russian ports Belarusian potash would be shipped. But previous statements coming out of Belarus have cited the port of St Petersburg and ports in Russia’s Leningrad region, as well as the port of Murmansk. Leningrad region ports include the Baltic Sea ports of Ust-Luga and Primorsk.

However, Russian Ambassador to Belarus Boris Gryzlov last week was cited as saying Belarus could begin transshipping potash this year through the Russian port of St. Petersburg and ports in Russia’s Leningrad region, according to an Interfax report.

Responding to an analyst’s question about the ability of Belarus calling to ship out of the Russian Baltic port of Ust-Luga and other Russian ports at a company earnings call on Feb. 17, Seitz said Nutrien had looked closely at the possibility, and he believes the options are limited for BPC getting access to “tidewater” at the present time.

He noted the Russian port of St Petersburg was the closest in distance to Belarus, but that there was not a lot of spare transshipment capacity at the port, given the amount of cargo moving through it.

Regarding the more northern port of Murmansk in Russia’s Leningrad region, which also has been cited as a potential option for Belarus potash transshipment, Seitz reminded that the port is more than 2,000 km from Belarusian potash production, so that option “obviously has challenges,” he said.

Meanwhile, Ukraine was set to introduce temporary restrictions on the transit of Belarusian potash through its territory to CIS and Baltic countries from Feb. 16, according to a report by Belarus-based pro-democracy and pro-human rights news site Charter97, citing the website of Ukraine’s State Administration of Railway Transport.

According to the report, the Belarusian potash transported through Ukraine is mainly to Turkey, Hungary, Poland, the Czech Republic, Romania, and Austria. However, the Belarusian potash volumes transported via Ukraine are understood to be small.

While the restrictions are described as “temporary,” the railway company did not indicate how long they would last. Ukraine last week was reported to have refused to participate in the export of Belarusian potash, according to an Interfax report.