Power of Distribution
Distribution is a major reason behind any company’s success or failure. Devising the best strategy to reach your target customers is paramount. I found the recent Bangkok Post article very thought-provoking on Temu’s strategy in Thailand.
https://www.bangkokpost.com/business/general/2841612/upsetting-the-apple-cart
Fertilizer distribution varies in each country depending on the regulatory environment, arable land, infrastructure, population, the geographic size and location and the availability of raw materials. Many factors in distribution will contribute to the cost and availability of fertilizers at the retail level including the heavy and bulky nature of the product.
Quality, service and brand are also important, but none of that matters if the product isn’t readily accessible and affordable. Could a Temu type strategy work in the fertilizer industry? Good question.
Separating the Noise from the Song?
Separating the Noise in Commodities
A friend sent the attached graphic, and it made me think of all the noise in the commodity industry and how it affects fertilizer prices. How do you separate what is important when buying fertilizer?
“And you may ask yourself, ‘How do I work this?’ “
Annual standard-grade MOP contracts are settled with China and India
Egyptian gas shortages and Indonesian ammonium sulphate tenders
India’s latest Urea/DAP tender/demand. Right amount? Right price?
China. Imports vs Exports vs Domestic Consumption
Exorbitant container freight costs
Product quality and consistency issues
Production rates and turnarounds
In-season vs Out-of-season
World Supply vs World Demand
Crop Price Volatility. Corn vs Beans
Natural Gas, Ammonia and Oil Prices
Floods, fires, monsoons and droughts
Wars, sanctions, tariffs and global supply chain disruptions
Interest rates, exchange rates and financing issues
“And you may ask yourself, ‘Am I right, am I wrong?’’”
In many ways, predicting fertilizer prices is like predicting the flow of water, it goes where it wants to go, to the path of least resistance until there is sufficient pushback.
“And you may ask yourself, ‘Well, how did I get here?’“
Fertilizer prices will rise until they can rise no more. They will decline until the downward trend is finished. The water doesn’t care why the dam broke. It is always perfectly explainable after the fact, but very dangerous to fight the trend. Complexity is a certainty.
So where are prices headed now?
Quotations: ‘Once in a Lifetime’ by Talking Heads
Q2 Fertilizer Review
Q2 Fertilizer Review
Urea and DAP prices were very volatile during the quarter, while MOP prices were mostly stable.
The conflict in the Gaza Strip continues to cause cargo delays and alter trade routes.
The conflict between Ukraine and Russia continues to affect world freight and insurance markets and MOP trade routes.
Global container freight congestion has caused freight rates to increase 2-3x in the quarter. Container freights from China to Thailand have hit two-year highs. $1,500 per TEU from North China and $900-1000 per TEU from Central China.
China continues to halt Urea exports at least until August.
Natural Gas disruptions in Egypt have created supply disruptions in the Arab Gulf.
Agricultural commodities including Corn, Wheat, Soybeans and Palm Oil had a weak 2nd quarter. Wheat dropped 18% in June.
UREA
Urea ended the quarter around the $380 CFR level up 3.8% for the quarter and up 17% for the year.
Urea prices started the quarter with an Indian tender commitment of 724,000 tons at $347.70 - $339 per ton CFR. The tender was subsequently reduced to 340,000 tons which exacerbated the downtrend that would continue for the next 45 days, reaching $320 CFR in mid-May.
The market reversed after Egyptian producers cut output due to worries about national gas supplies. Urea prices finished the quarter up $60 per ton as Egypt was forced to close all Urea plants.
The quarter ended with Indian Potash Limited (IPL) issuing a tender closing on 8 July with offers valid until 18 July for delivery up to 27 August. Purchase estimates are in the 500,000-1,000,000 tons range. India has approximately 10.5m tons in stock and consumes about 36m tons per year.
There is still uncertainty about whether China will export urea in the 3rd quarter or keep for domestic consumption.
DAP
DAP prices declined slightly in the 2nd quarter 2.6% to $570-$575 CFR. Year over year, DAP prices have increased 25%.
DAP began the quarter softening to around the $530 CFR level but firmed to end the quarter with strong demand in S.E. Asia. India and Pakistan have low phosphate inventories compared to last year, but India is reluctant to pay the current CFR prices. The breakeven cost for Indian DAP importers is around $510 CFR based on the subsidies and maximum retail price (MRP). Demand for high P2O5 NPK grades in India may increase due to the high price of DAP.
In Thailand, cargo from Phosagro, OCP, Maaden and various Chinese producers arrived for the main season. DAP was reportedly purchased around the $575 CFR level for end-July shipment. CIQ inspections in China are now taking 2-4 weeks.
The DAP price is expected to remain stable throughout the third quarter with Indian demand and overall affordability expected to pressure the price downwards. The pending Bangladesh tender, with expected prices of $600 FOB, however, may push the price higher still.
MOP
Granular MOP prices were mostly stable declining slightly to $320-$330 CFR. Year over year, MOP prices are down 13%.
Granular prices were supported by steady in-season demand from Brazil, but standard MOP prices continued to drift lower as the markets wait for new standard MOP contracts for India and China. The new contracts are expected to be priced at the $280 CFR level. The contracts should stimulate MOP demand and set a floor on prices.
There is still a large disconnect between SOP and MOP prices. With SOP exports restricted from China, supply is very tight in S.E. Asia. SOP is being offered in Thailand at $685 - $695 CFR partially due to higher freights. The $365 per ton premium is significantly higher than the traditional average price difference of $200 per ton.
Rice Fertilizer Program Approved
As reported on 26 June in the Bangkok Post, the Government has approved a budget of 29.9 billion Baht (USD $808 million) to reduce the cost of chemical and organic fertilizer for rice farmers. There are 8 fertilizer formulas included in the program including: Urea, 20-8-20, 16-20-0, and 16-8-8.
The program is targeted for the major or first rice crop grown in the third and fourth quarters. According to the Office of Agriculture (OAE) economics, Thailand harvests approximately 9.5 million hectares of land for the major rice crop with an average fertilizer application of 250-500kg per hectare.
Thailand consistently ranks as one of the top 5 rice exporters in the world and the government expects the program to increase this season’s rice production.
https://www.bangkokpost.com/business/general/2817700/cabinet-allocates-b29-9bn-for-fertiliser-scheme
The Changing MOP Market
The order is rapidly fadin'
And the first one now
Will later be last
For the times they are a-changin'
Bob Dylan
The Muriate of Potash (MOP) market has changed a lot in Thailand over the last 15 years. MOP contracts in the past have been limited to a select group of well-financed, major importers in any one country.
In 2013, the Uralkali and Belaruskali (BPC) coalition separated. The period briefly opened the market for new importers and changed MOP purchasing patterns.
Around 2017, SQM limited MOP production from Chili to focus on the more profitable lithium and potassium nitrate markets.
Belarusian authorities diverted a plane in May 2021 en route to Lithuania carrying journalist Roman Protasevich to Minsk. The incident had wide-reaching implications and led to sanctions against Belarus from many countries.
Soon thereafter, Lithuania terminated the railway transport agreement with BPC thus denying access to the port at Klaipeda. With exports restricted, BPC was forced to alter trade routes.
In February of 2022, the conflict between Russia and Ukraine commenced. Restrictions and sanctions soon followed on Russian potash. MOP trade flows were again disrupted.
In May of 2022, MOP was hitting new highs not seen since 2008. Prices reached $1,100 per metric ton CFR on supply tightness and port congestion from the aftermath of Covid-19.
Since October 2023, Dead Sea Works (DSW) and Arab Potash Corporation (APC) have had Red Sea transit routes disrupted by the conflict in Gaza. Cargoes diverted around the Cape of Good Hope have further increased logistics costs and port congestion worldwide.
As of 17 June 2024, the threat of unionized port workers at the Port of Vancouver currently looms over Canada’s largest port.
The Rise of Laos
One of the big stories in MOP is the emergence and growth of Laos. China has made substantial investments in Lao Kayuan and Sino-Agri Potash over the last 5 years. Both plants are in Khammouane province.
As Argus Media recently reported, Sino-Agri Potash will increase their capacity from 2 million tons per year to 5 million tons by 2025/26 and eventually 10 million tons per year. Lao Kaiyuan currently has a capacity of 1 million tons and plans to double that by the end of 2025. Deliveries to China have grown massively to 1.7m tons in 2023 from just 127,800 tons in 2020. (Argus Media, Insight Paper, May 2024, Laotian MOP supply boom: Key challenges and the need for a new Laos MOP price assessment).
Sino-Agri Potash Plant. MV Cheng Ji Hai. 1st Granular MOP Vessel from Laos to Thailand.
There are also three ongoing projects near the Laos capital of Vientiane which are funded with Chinese investment: Sino Hydro Mining (2.5m mt/year), Ruiyuan Richfield Sylvine Sole (500k mt/year) and Zangee Mining (2.0m mt/year).
In July 2023, we imported MOP from the first bulk vessel sent from Laos to Thailand, a 4,500 ton coaster from Cua Lo Port, Vietnam. Argus reported in May 2024 that Sino-Agri sent their first bulk vessel from Vietnam to Europe and this month sold their first bulk cargo (27,000 tons) of granular MOP to Brazil.
Two undeveloped MOP projects in Thailand (Chaiyaphum and Udon Thani) are currently being reviewed. Reuters recently reported that China’s SDIC (the largest SOP producer in the World) is looking to acquire 49% of the MOP mine in Udon Thani, Thailand.
With increasing supply from Laos, Eurochem and BHP’s Jansen project, there will be heightened competition, especially for importers that resell to smaller bulk blenders and manufacturers. Small plants in Malaysia will compact inexpensive Russian and Belarusian standard-grade MOP and export to Thailand via container. International traders will compete for MOP allocation from new manufacturers to the Southeast Asia markets.
The Sulphate of Potash (SOP) market will continue to grow in areas where soils accumulate too much chloride and growers learn more about chloride-sensitive crops. Agricultural byproducts, locally sourced high-quality minerals, and bio-waste projects that produce fertilizers with considerable soluble K2O content and low Chlorides will all compete as a K2O source.
For MOP times are certainly ‘a-changin’.
If MOP contains 60% K2O, what is the other 40%?
Canpotex Granular MOP
We are frequently asked this question. The chemical name for Muriate of Potash (MOP) is Potassium Chloride (KCl). However, the Chloride content is never listed on fertilizer bags.
If the chemical purity were 100%, the Potassium (K) would be 52.4% (63.1% K2O) and the Chloride (Cl) would be 47.6%.
However, the simple answer is approximately:
50% Potassium (as K) [ 50% K is equivalent to 60.2% K2O ]
48% Chloride (as Cl)
2% Magnesium (Mg), Calcium (Ca), Sodium (Na), Sulfates (SO4) and insolubles such as clay.
The logical next questions: Are Chlorides helpful or harmful to plants and soils and why isn’t the Chloride content listed on the bag?
Stayed tuned.