SQM backs hopes for potash price revival - as values indeed rise

25.08.2016

Sociedad Quнmica y Minera de Chile joined rival potash producers in seeing a rise in prices of the fertilizer ahead, amid signs that values are indeed reviving from decade lows after the signing of key supply deals.

Chilean-based SQM, which is listed in New York, said that "we have some [potash] price recovery", after extended talks between producers and Chinese and Indian buyers have since mid-July seen a series of supply deals agreed.

The annual agreements between exporters and China, the top importer, and second-ranked India are viewed as particularly important to the industry, setting price benchmarks around which values paid by other buyers are negotiated, and often releasing pent-up buyer demand.

"We expect an increase in average prices of [potash] during the second half of the year," SQM said.

'Can't keep up with supply'

The comments echo similar price forecasts from the likes of North American rivals Mosaic and PotashCorp, which is a major shareholder in SQM.

And they come amid some evidence from other sources that price rises are indeed coming through, with Credit Suisse, for instance, last week reporting a month-on-month rise of $3, to $230 a tonne, in Brazilian values – albeit still representing a drop of 16% year on year.

South East Asian prices, however, were flat at $235 a tonne, according to the bank, down 19% year on year.

Separately, broker Raymond James on Monday pegged US Midwest prices at $248 a tonne - up $13 a tonne week on week – flagging the boost to values from the recent export deals.

"Midwest prices continue to rise higher as producers seek to capitalise on the Chinese and Indian contracts," it said.

The broker has also highlighted talk that Canpotex, the North American potash export cartel, "can't keep up with supply as inventories remain slim", following production cutbacks prompted by weak values.

Lithium surge

SQM made its forecast as it unveiled earnings of $83.1m for the April-to-June quarter, in line with the result for the same period a year before.

Revenues rose by 1.1% to $489.6m, as a doubling in sales of lithium, which is used largely in batteries, helped offset a 27% drop to $97.3m in potash sales, reflecting weaker prices.

"Average prices from the potassium chloride and potassium sulphate business line fell approximately 29% [year on year], reaching $260 a tonne for the quarter," the group said.

Group earnings came in at the equivalent of $0.32 per share for the quarter, ahead of the $0.27-per-share result expected by analysts.

SQM, whose potash sales volumes were depressed last year by one-off mining outages, forecast that its volumes for 2016 will "be at least 20% stronger than the sales volumes that we saw last year".

In lithium, it said that "we continue to see very strong demand… primarily driven by batteries, and we estimate that global demand growth for this year could exceed 10% compared to 2015".


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