Deconstruction of Potash Fertilizer Contract: "Global Lowest Price" Boosts Confidence in Agricultural Materials Circle

On the afternoon of July 14, 2016, the Chinese Potash Fertilizer Joint Negotiation Group, with Sinofert Co.
, Ltd.
as one of the main representatives, and BPC (Belarus Potash Corporation) reached an agreement on China's 2016 potash import contract.
The contract price is CFR 219 US dollars/ Tons
.
This price is lower than India and continues to maintain the lowest price in the world
.
As the contract transaction price was higher than analysts' previous forecast, after the announcement, the domestic market was calm
.
How is the CIF price of US$219/ton formed? How much is the difference between the final cost of imported products and the market spot price? Do domestic parties recognize the price? In response to these issues, the reporter interviewed representatives of domestic potash fertilizer suppliers and relevant market analysts, deconstructing 2016 potash prices in China's big contract formation "cause and effect" analysis of the future trend of the domestic market
.
All parties in the market believe that the contract is "reasonable.
" "From the perspective of international suppliers and domestic importers, this price is relatively reasonable, and it is a price that is in line with the current market situation and seeks truth from facts
.
" Domestic potash fertilizer suppliers believe that this year China's potash fertilizer The price of large contracts dropped by US$96 from last year, reaching the lowest level in the past 10 years
.
We believe that at the time the contract was signed, the price of US$219 was reasonable based on the market at that time
.
China signed a contract after India, but got a lower price
.
Supplier representatives believe that this is the result of a variety of factors
.
"On the one hand, the self-sufficiency rate of domestic potash fertilizer has been increasing year by year, and it has reached 50%.
The national reserve policy guarantees the stock of potash fertilizer and increases our bargaining chips
.
On the other hand, this year India broke the rules and signed the contract first because India has no There is a demand for fertilizer in China, so it has to sign a contract before China
.
China has mastered the psychology of the other party and has a good control over the pace of negotiation, thus ensuring the market position of the'price depression'
.
" For this view, Another domestic potash fertilizer supplier expressed approval
.
He believes that the signing of China's potash fertilizer contract reflects three aspects of success: "First, the time for China to sign the contract is very good.

.
India signed the contract before China, and the time has come to July, China faces the choice of whether to purchase this year
.
For long-term considerations, appropriate purchases should be made to maintain long-term cooperative relations
.
Moreover, the Indian contract has eased the supplier's inventory to a certain extent
.
If you do not sign it now, you may face negotiations on the contract for the entire year of 2017
.
Although China's current domestic production capacity and inventory can meet this year's demand for potash fertilizer, if the inventory is consumed too quickly, China will be passive in the negotiation
.
Second, China still maintains its status as a price depression in the mainstream market
.
In the early contacts, the foreign party offered a very high price and the negotiation was very difficult.
The price of 219 US dollars/ton showed that our negotiation strategy has achieved certain results
.
Third, China signed a contract after India, and it signed a half-year contract, and it can still get a lower price than India.
This is a good phenomenon
.
This is not only conducive to ensuring the market in the second half of the year, but also paving the way for future negotiations
.
At the “2016 China Potash Potash Industry Technology Exchange Conference” held recently, Feng Mingwei, deputy general manager of Sinofert Co.
, Ltd.
, specifically pointed out when analyzing the dynamics of the international market that China's potash fertilizer contract is under the guidance of relevant government departments.
It was completed with the strong support of the domestic national potash industry
.
He further explained: “The contract price signed by India and Belarus is US$227/ton, but the Urals and Potash are both dissatisfied with this
.
After the negotiation of China's major contract, we did not receive any news of objection from international suppliers, and the joint negotiation team is still intensively communicating with foreign businessmen on details
.
I think that within the next month, all parties to the negotiation will successively issue statements about the content of the contract
.
"The transaction volume has not been determined but is expected to be low.
After the announcement of the signing of the large contract, the domestic market's response to the contract price was flat, and the focus was on the quantity of potash fertilizer imports
.
Domestic potash fertilizer suppliers believe that both international and domestic potash fertilizer prices are currently at a low level.
, Both domestic and international producers will not want too much supply to continue to impact the market
.
The domestic supplier said: “After the contract price dust settles, the domestic market in the third quarter should be relatively stable
.
Some international suppliers and domestic manufacturers believe that the contract price is relatively low
.
The contract price of US$219/ton is the lowest in 10 years.
However, we cannot rule out the possibility that potash fertilizer prices will continue to decline
.
Looking at the market rationally, the lower the potash fertilizer price, the better
.
Domestic manufacturers do not want too low contract prices to bring huge competitive pressures, and foreign manufacturers must also ensure that they themselves The profit of
foreign producers has been greatly affected by only considering the inflation in the past 10 years
.
The influencing factors include the decline in the prices of agricultural products, the poor global economic situation, frequent natural disasters, the reduction of agricultural planting area, and the demand for fertilizer.
Corresponding reduction
.
In this regard, since last year, companies such as Potash Canada and German Potash have successively adopted production reduction measures in order to control supply and stimulate price increases to a certain extent
.
” Another domestic distributor judged that the number of China's potash fertilizer contracts in 2016 was not large.
Will be too big
.
He said: "China's current potash fertilizer inventory is lower than the inventory at the end of 2009.
Some of the more than 1 million tons of the port's inventory belong to the state reserve, and the domestic channel inventory is not large
.
Therefore, a portion of potash fertilizer is moderately imported.
Supplementing domestic demand is very necessary
.
If the inventory is too low, imported potassium does not enter the market, the domestic market price rebounds too fast, higher than the international price will put more pressure on future negotiations
.
From January to June this year, China imported more than 3 million yuan Ton, considering the market demand, the half-year contract volume will be relatively low
.
” In addition, some market analysts believe that the CIF price of China’s potash fertilizer contract is US$219, a decrease of US$96/ton from last year.
The rate of decrease is slightly lower than that of the Indian contract.
The price gap between India and India has shrunk to only US$8/ton, which is much smaller than the previous contract price difference
.
At present, the standard low-end CIF price of potassium chloride in Southeast Asia is US$220/ton.
The price is so close, or it may also indicate that the number of potash fertilizer contracts in China this year will shrink significantly.

.
Domestic downstream demand is expected to gradually open up market analysis, and the signing of China's potash fertilizer contract is of great significance to stimulating market demand
.
Internationally, India’s large contract prices have not been generally accepted by international suppliers
.
It will take some time for the international potash fertilizer market to digest the new prices
.
After China's potash fertilizer contract is signed, the international potash fertilizer trade will get a more meaningful price basis
.
Since then, Asian countries may sign purchase orders one after another.
The number of transactions is different, and the CIF price is different.
The CIF price of potash in the Asian market has stabilized at US$220-265
.
Domestically, there are currently sufficient sources of potash fertilizer in China's bonded areas.
At this time, the price of the big contract is determined, the "entry" sales have entered the countdown, and the social stock of potash continues to increase
.
From the perspective of demand, the domestic chemical fertilizer market is currently in the wheat fertilizer preparation period, and downstream compound fertilizer companies are slowly increasing their overall start-up.
While accelerating the consumption of raw material inventory, the demand for new orders to fill warehouses will also start one after another
.
It is expected that within a period of time, the long-silent downstream demand market will restart, and the phenomenon of inquiries and inquiries will continue to increase
.
In the view of major domestic potassium sulfate manufacturers, the signing of China's potash fertilizer contract has little impact on the potassium sulfate industry
.
Representatives of potassium sulfate manufacturers believe that the overall supply of potassium sulfate in the domestic industry is currently oversupply and demand is not strong.
The demand for potassium sulfate for compound fertilizers and agriculture has both fallen, and exports are not smooth
.
In the first half of the year, the domestic potassium sulfate market continued to be sluggish, and prices continued to decline
.
Some potassium sulfate production enterprises have stopped production or closed down, and the effective utilization rate of production capacity is low
.
He also said: “The price of potassium sulfate is currently at a low level, close to the cost line of some companies, and the room for reduction is limited
.
However, after entering the low season for fertilizer use, the purchase of raw materials for downstream compound fertilizer plants has basically stagnated.
It is expected that the operating rate of the potassium sulfate industry will not be large in the short term.
Improvement
.
"The signing of the contract or the foundation for the potash fertilizer market is calculated based on the USD to RMB 1:6.
6 exchange rate.
The CIF price of USD 219/ton plus duties, value-added tax, port miscellaneous and necessary expenses for packaging, etc.
, is equivalent to 60% of the final cost of the powder.
The price is about 1770 yuan/ton, which is similar to the current domestic industry statistics showing the selling price of red powder potassium at the port
.
Analysts believe that about half of China's potash fertilizer comes from imports, and the domestic price is greatly affected by the international market
.
The large contract price exceeds the previous forecast.
The domestic potash fertilizer price drop space is basically blocked, and the potash fertilizer market is expected to stabilize in the second half of the year
.
Analysts also pointed out that the determination of the large contract price of potash also has an indirect impact on the prices of nitrogen and phosphate fertilizers
.
There is a certain amount of difference between the prices of nitrogen, phosphate, and potash.
The price of potash fertilizer has stabilized now, which has reduced market pessimism, and has also formed a certain support for the prices of phosphate and nitrogen fertilizers
.
Feng Mingwei agrees with this
.
He also added: “There is a certain proportion of domestic nitrogen, phosphorus and potassium fertilization.
Imbalance, excessive nitrogen fertilizer consumption and insufficient potassium fertilizer consumption
.
From the perspective of scientific fertilization, the domestic potash fertilizer market may reach a demand of 20 million tons in the future, which is good news for the market
.
"At the same time, Feng Mingwei also used the trend of the international bulk commodity market to judge that the international potash fertilizer price may rebound in the next two years, and the 2016 potash contract price may build the bottom of this round of market
.
He said: "Since 2015, The general situation in the international market is that bulk commodities fluctuate in the downturn
.
Since the second half of 2015, the international potash fertilizer supply and demand situation has undergone structural changes, and the trend of oversupply is obvious
.
In 2019, the global potash fertilizer production capacity may reach about 60 million tons, while the demand is more than 40 million tons
.
In the long run, the international demand for potash fertilizer has grown moderately.
The current downturn is due to the supply and demand situation on the one hand, and the depreciation of the currencies of Southeast Asia and Brazil, which has led to a decline in demand
.
Using professional forecasting software combined with years of market experience correction, we judge that the international potash fertilizer prices will rise in 2017 and 2018
.
In addition, after the resumption of value-added tax, the imported potash fertilizer has no deductions, so it is necessary to pay the full value-added tax at the rate of 13%
.
And domestic production companies have also increased the cost burden
.
Neither manufacturers nor traders want the market to continue to decline
.
The contract price of US$219/ton in China may have a positive effect on the domestic and international markets
.
"