In 2019, the global potash market conditions were relatively challenging across the industry. China did not sign any new seaborne contract for the supply of potash in 2H 2019–1H 2020, and India settled new contracts only in October.
Demand in major spot markets was under pressure, largely due to customer concerns of further price erosion.
From the beginning of the year, global potash prices were under downward pressure due to high potash inventories, unfavourable weather conditions in North and Central America, and the deterioration of farmer margins in Southeast Asia. In 2019, Brazil was the most active spot market. According to the Brazilian National Fertilizer Association, potash imports to Brazil increased by 2% in 2019 compared to the previous year, and totalled about 10.2 million tonnes, as a result of surging Chinese demand for Brazilian soybeans. In spite of strong demand, ample supply amid weak potash demand in other major markets of granular potash, was the key factor of potash price softening in Brazil.
The US market has been under heavy downward price pressure, as weak demand due to unfavourable weather conditions resulted in build up of potash inventory which led to decrease of potash prices.
In Europe, potash demand and prices have come under downward pressure due to intense competition and softening prices in other key markets of standard and granular products.
Major markets in Southeast Asia remained slow amid palm oil producers’ profitability/liquidity concerns. Given poor demand trends in Malaysia and Indonesia amid record-low palm oil futures, the bulk of potash volumes were reallocated to China. The combination of continuously high import volumes and insufficient demand from end-consumers led to accumulation of port inventories which reached historical records. As a result, China has suspended seaborne deliveries after September.
India delayed signing new contracts until the start of the fourth quarter due to sufficient potash inventories. Uralkali was the first supplier to agree on the contract price and sign a supply agreement with Indian Potash Limited (IPL), the major Indian importer of fertilisers.
The contract was signed at a price of USD 280/t CFR, a USD 10/t discount from previous year.
In response to the challenging market environment, the world’s major potash producers announced production cuts at the end of the third quarter. Uralkali also announced production curtailments for the fourth quarter of 2019.
According to Company estimates, global potash demand decreased to 63–64 million tonnes in 2019, compared to 66 million tonnes in 2018.
Potash demand outlook for 2020 is cautiously optimistic. In 2020, global potash sales are expected to increase to 65–66 million tonnes compared to 2019, mainly due to expected rebound in the major markets of Southeast Asia, the USA and Central America, and good demand in Brazil.
COVID-19 is having a significant impact on countries, which are the main consumers of potash (China, Europe and US) and other producers of potash around the world. We do not rule out a negative effect of COVID-19 on potash industry, while agricultural sector is a defensive industry which addresses the basic needs of food security and we hope that negative impact will be mitigated by local authorities in order to provide smooth application of potash fertilizers during spring and autumn seasons in 2020.
1 Including Africa, Middle East and the CIS.
In 2019, the Brazilian market remained premium against other markets.
In 2019, the Company continued to efficiently manage the distribution of volumes by market.
Most of the potassium chloride produced by Uralkali is traditionally sold internationally. In 2019, exports accounted for 75% of Uralkali’s sales.
The Company evaluates the market conditions and adjusts its production and sales volumes in accordance with global demand.
The combination of such factors as the absence of a Chinese seaborne contract in the second half of the year, the delayed signing of a contract with Indian customers, low demand in the major markets of Southeast Asia, destocking in key markets during the second half of the year, and a decline in potash prices had adverse impact on the Company’s potash sales in 2019.
In 2019, the Company’s export sales amounted to about 7.4 million tonnes, which represents a 13% decline on the previous year.
Higher average FCA prices compared to 2018 partially compensated the reduction in sales volumes. Average export price of USD 235/t FCA was 11% higher than average price in 2018 mainly due to significant price changes on the global potash market.
In 2019, the Company continued to maximise net revenue by reallocating export volumes to premium markets where possible.
In 2019, Brazil remained a premium market in comparison with other export markets. At the end of the year, Latin America’s share in Uralkali’s export portfolio increased to 42%, compared to 35% in 2018, mainly due to the increase in export sales to Brazil.
The biggest consumers of Uralkali’s products on the domestic market are manufacturers of compound mineral fertilisers; in 2019 they accounted for 89% of Uralkali’s domestic sales volumes.
On the Russian market, potassium chloride (KCl) is mostly used as a raw material for the production of compound (NPK) and mixed fertilisers and other chemical products, as well as a component for drilling fluids used at oil plants, and as a single-component fertiliser for direct soil application. Potassium chloride is also used in small amounts in the non-ferrous metals industry and the food industry.
In 2019, Uralkali supplied 2.39 million tonnes of potassium chloride to the Russian market, representing a 9% decrease versus 2018.
More than half of the arable lands in Russia are used to grow crops that require the increasing use of potash – wheat, sunflower, corn and sugar beet. Therefore, the Russian agricultural sector’s need to grow yields, gross harvest and exports represents a significant opportunity for potash fertiliser sales. In 2019, Russian farmers consumed 0.075 million tonnes of potash as a single-component fertiliser. Total consumption of Uralkali’s potash by Russian agricultural producers (including the consumption of potash in compound fertilisers) increased by 2% in 2019, to approximately 0.64 million tonnes.
Industrial consumers – oil, chemical and nuclear enterprises – traditionally acquire potash for special production processes. In 2019, this group purchased 0.186 million tonnes of Uralkali’s potassium chloride.
In addition to potassium chloride, Uralkali sold 0.36 million tonnes of enriched carnallite and 1.70 million tonnes of industrial salts on the domestic market in 2019.
The Company’s main consumers of enriched carnallite are the Solikamsk Magnesium Plant and PSC VSMPO-AVISMA Corporation, which use it in the production of magnesium.
Uralkali’s leading position in the industry is anchored in its high level of expertise and social responsibility. Today, it is not enough to simply produce high-quality products; it is also essential to drive scientific progress and innovation to support in the daily work of farmers (our end customers), to ensure optimal crop yield. To this end, Uralkali works with Russian and international partners as a member of major associations such as the International Fertiliser Industry Association (IFA) and the Russian Association of Fertiliser Producers (RAFP), and serves on the scientific committee of a recognised international institute engaged in applied agricultural chemistry research – The Fertiliser Institute (TFI).
PJSC Uralkali strictly complies with its obligations to ensure non-discriminatory access to potash fertilisers for consumers.
In November 2010, the Federal Antimonopoly Service of the Russian Federation approved the Rules according to which the price of potassium chloride for Russian producers of compound fertilisers (NPK producers) shall be based on the minimum export price starting from 2011. This principle is also stated in the FAS Recommendations for ensuring non-discriminatory access to potassium chloride. Since October 2013, prices for NPK producers have been calculated on a monthly basis, enabling the Company to respond promptly to changes in market conditions.
Based on Russia’s accession to the WTO and transition to market pricing on the domestic mineral fertiliser market since 1 January 2013, the Non-Profit Organisation Russian Association of Fertiliser Producers (RAFP) and the Union “Russian Agrоindustrial Association of Employers Agrоindustrial Union of Russia (Rosagropromsoyuz)” regularly enter into a Cooperation Agreement. The aim of this Agreement is to meet the demand of mineral fertilisers in Russia’s agroindustrial sector. The Agreement determines the main economic principles of interaction, in particular, that members of the RAFP and Rosagropromsoyuz are advised on using market pricing principles.
Since December 2012, the FAS Recommendations (later amended and prolonged until 2022) are in force. Under these Recommendations, potassium chloride prices for the domestic market have been calculated according to the minimum export price formula.