Eurochem found the first buyer for potassium in China

Experts differed in opinion, whether it can lead to decrease in prices for potash fertilizers.
EuroChem announced yesterday that it signed on Wednesday the first agreement for the supply of potash and NPK fertilizers with the Chinese agricultural producer Heilongjiang Beidahuang Farms. While this is a framework memorandum, there are no specific volumes of supplies and prices in it, the representative of EuroChem says, if the contract is concluded, it will not be this year.

This year, the Russian company plans to begin commercial production of potash fertilizers at Usolsky GOK and at the Volgakalii Combine and produce 400,000-600,000 tons in just one year. Eurochem spent $ 7 billion on the construction of two plants and plans to increase production by 2025 on 8.3 million tons. Will Eurochem sell all potassium for export or fight for the domestic market, the representative of the company does not say.

At Usolsky GOK, commissioning is already under way, the production chains are being debugged, the Eurochem spokesman says, without specifying whether the company will supply Heilongjiang Beidahuang Farms products. Contact with a representative of the Chinese company on Thursday night failed.

"Evrokhim" may become the second exporter of potassium in Russia. Until now, the monopoly on exports was held by Uralkali. It was this company that in 2013 brought down prices for potash fertilizers from $ 400 to $ 300 per 1 ton due to withdrawal from the trade agreement with Belaruskali (Uralkali ceased trading through the joint trader of the BPC). Both companies accounted for 42% of the world potassium fertilizer market.

In total, Uralkali produced 6 million tonnes of potassium in the first half of 2017 and planned to keep production at 1 million tonnes per month before the end of the year (with an estimate of the maximum production capacity of 13.1 million tonnes, the company did not disclose operating results for the previous year) . By the end of 2017, 85% of the company's revenue was from exports, so that it could supply 10.2 million tonnes to foreign markets.

"Entering the Eurochem market for a long time was considered one of the main risks for the balance of supply and demand of the potash industry," says Aton analyst Andrei Lobazov. The new player needs an international market, he argues, the contract with the consumer, and not with the trader demonstrates the flexibility of the marketing policy. The prices for Evrokhim's supplies are unlikely to be affected, said BCS analyst Oleg Petropavlovskiy: "Companies need a stable sales market, and prices are determined by a market where EuroChem is still a very small player." In addition, the supply on the potash market exceeds demand, he continues.

The potash market starts to come alive, prices are gradually rising from the minimum values ​​($ 200 per 1 ton), says Nikolay Sosnovsky, director for metallurgy and mining at Prosperity Capital. But after the alliance of Uralkali and Belaruskali collapsed in 2013, many manufacturers switched to the "everyone for himself" mode and now the prices are much more competitive, the expert notes. The market no one will simply not concede, it is possible that either additional supplies will be stretched in time, or fertilizers will be sold at a discount to the spot price, Sosnovsky argues.

Even if prices go down, Volkaliya and Usolsky GOK have a safety margin: Evrokhim expects that the cost of 1 ton of potassium, taking into account duties and delivery costs at both enterprises, will not exceed $ 100.

Now the bulk of the revenue (74%), according to him, EuroChem receives from the sale of nitrogen and phosphate fertilizers, the company earned $ 4.9 billion last year. If the price of potassium and other fertilizers continues at the current level, by 2025 the company due to sales of potash fertilizers can increase revenues by more than a third to $ 6.5 billion.