Why Can China's Potash Fertilizer Price Become a Global Low?

In late March this year, after nearly 5 months of arduous negotiations, the Chinese joint negotiation team and supplier representative BPC (Belarusian Potash Company) reached agreement on this year's potash fertilizer import contract, at a price of CFR 315 USD/ton, up 10 USD/ton from last year's contract price, with other terms unchanged.

In recent years, China's potash fertilizer major contract price has consistently been the world's lowest, and this year is no exception. Why can China's potash fertilizer price become a global low? Apart from the superb negotiating skills of the Chinese negotiators and their good grasp of market timing, there are two other main reasons:

First, China's demand for potash fertilizer is large. China is one of the world's largest potash fertilizer importers. Since 2011, annual imports have all been above 6 million tons: 6.4019 million tons in 2011, 6.3421 million tons in 2012, 6.0297 million tons in 2013, and as high as 8.0312 million tons in 2014, a sharp year-on-year increase of 33.19%. Huge potash fertilizer demand is viewed favorably by foreign suppliers, especially when international potash fertilizer supply exceeds demand and sales are difficult; the Chinese market has become a market that foreign suppliers must compete for.

Second, the potash fertilizer development strategy has achieved success. China itself lacks sufficient potash resources. Apart from a few places such as Qinghai and Xinjiang that have relatively good soluble potassium resources, most places lack soluble potassium. Therefore, China formulated the three "one-third" strategy for potash fertilizer development years ago: one-third domestic production, one-third imports, and one-third "going global" to build plants abroad.

In recent years, China's potash fertilizer output has developed rapidly, and the self-sufficiency rate of potash fertilizer has risen markedly. Last year China's potash fertilizer output reached 6.1047 million tons in terms of K2O equivalent, breaking through the 6 million ton mark for the first time, up 13.55% from 2013, and maintaining growth of more than 10% for many consecutive years, the fastest output growth among all fertilizer types. With the increase in domestic potash production capacity, the proportion of imported potash has dropped from a peak of 70% to about 50%, reducing dependence on imported potash fertilizer, which has also increased China's initiative in potash fertilizer import negotiations.

From the second half of last year to the beginning of this year, China imported large quantities of potash fertilizer while international potash fertilizer prices were low. In 2014, China's potash fertilizer imports were 2 million tons more than in 2013, and in January this year, another 720,000 tons of potassium chloride under the previous year's contract arrived. Together with the domestically produced portion, China's potash fertilizer supply is secure and can fully meet domestic market demand. We are not anxious; the foreign suppliers are anxious, because failure to secure the contract with China affects their contracts with India and other countries.

China's potash fertilizer "going global" strategy has also clearly produced results. By the end of last year, China had operated 28 potash fertilizer projects in 10 countries, some under construction or in bidding, and some already in production. Among them, the Kaiyuan Group's Laos project realized for the first time a reverse supply to the domestic market, filling the gap in the domestic market. Last year, 90,000 tons of potash fertilizer shipped back from Laos were declared for import, and in January this year another 23,000 tons were declared.

We must recognize that "only by owning resources can one have confidence." If there is only demand while one's own output is seriously insufficient, it is easy to be held hostage by others. Southeast Asia, Brazil and others all have large demand for potash fertilizer, but because their own potash fertilizer output is seriously insufficient, they can only import at high prices. Last year China's import price of potassium chloride was 305 USD/ton, while in the same period the import price of Southeast Asian countries was 334 USD/ton and Brazil's import price was 350 USD/ton.