Potash is one of the three main nutrients in the global fertiliser industry and 90% of the produced potash is consumed as a fertiliser in agricultural crops such as wheat, rice, corn, oilseed and sugar. The global demand for potash has been increasing owing to a rise in demand from China, India and Latin American nations since they lack indigenous production. But, this increase has led to a much higher surge in supply.
According to the International Fertiliser Association (IFA), an estimated total nutrient sales for Nitrogen, Phosphorous and Potassium (N, P, K) based products was 186 million MT in 2015, which is likely to increase 270 million MT in 2020 and may register an average growth rate of 2% p.a. However, with planned capacity expansions and expected investment of $130bn, the global production capacity can see an increase at a much higher rate of 150 million MT by 2020.
Moreover, potassium and fertilisers based on the commodity are too facing an oversupply. As per the IFA report, the global demand for potassium is expected to grow by 2.1% p.a. from 37.8 million MT in 2015 to 43 million MT in 2020. However, the global production can witness an increase from 44.1 million MT in 2015 to 51.6 million MT by 2020. The potash industry is presently categorised by a near stagnant demand growth, but the production capacity and supply have been increasing.
The past trends in the potash industry reveal that the commodity had a very good demand phase between 2002 to 2008. The international market price of potash rose from 2002 owing to increase in demand of fertilisers and reached its peak in the mid-2008. This demand for fertilisers was due to the rise in grain production mainly emanating from India and China. Additionally, fertiliser consumption was supported by an increase in the production of biofuels since this was required to produce sugar, palm oil and corn. These crops consume the highest potash per hectare. In 2004, the potash consumption superseded its global production and resulted in a shortage, other nutrients nitrogen and phosphate too were scarce. This led to a restructuring in the market and producers increased the production capacities.
By late 2008, the global financial crisis caused a slump in the demand for fertilisers since the prices were high. Thereby, causing a fall in the prices of nutrients, but potash prices remained largely unaffected due to the concentration of its production in Russia and this was imported in high-demand countries such as India and China with long term contracts.
The demand for potash grew in 2010 with the economic recovery, rebound in emerging economies and higher income and higher consumption. However, by then, the planned production capacities started coming into play. The world potash demand grew at 20%, while the total supply at 34% led to an excess production of the commodity. This oversupply in the market affected the prices and also resulted in the closure of mines and prompted layoffs.
This situation is expected to continue in the coming years as per the forecast by the IFA statistics on supply and demand. The global potassium capacity is projected to grow at 64.5 million MT by 2020 at a very healthy rate of ~22% as compared to the capacity in 2015. Large brownfield projects and six new mines are anticipated to be operational between 2016-20, intensifying the capacity increase. Nearly 70% of this incremental capacity will be from North America and EECA. The supply for K2O is expected to grow by 17% over 2015 and will reach 51.5 million MT by 2020, however, the demand is expected to reach 43 million MT in the same year.
Therefore, on consideration of the above facts, Televisory believe that there are two different scenarios wherein which the market can settle and resolve the problem of oversupply. One is through demand increases and another by cutting down the excess supply. On demand side, fertiliser usage is directly dependent on the agriculture sector’s growth globally, but with time, the available arable land has decreased, showing negligible growth in the last few years. A policy change in major demand driving nations like India and China can also affect the demand of nutrient. For instance, China recently introduced an annual limit on fertiliser use by the so called 'zero-growth' policy implemented in 2015 and is slated to continue until at least 2020. This is not a very healthy development for the industry. Additionally, the industry is highly concentrated, where in lesser number of suppliers have the maximum market share due to high competition the producers end up increasing their output in hope of increasing their market share. Furthermore, unless the companies make an effort to cut the supplies till the time prices recover the oversupply problem will continue to exist. The potassium fertiliser industry is at crossroads, a focused approach is required both from demand and supply side to balance the oversupplied potash market.