LONDON, Jan 10, 2019 /PRNewswire/ --From 1st January 2019, China's Ministry of Finance - in an unexpected policy shift - has removed all potash export tariffs with major implications for the potassium sulphate (SOP) market in particular. The removal of the trade barrier between 6.6 Mt/y of generally low-cost Chinese capacity and a world market enjoying premium SOP prices will cause major concern for international producers and projects alike. The surprise move will undoubtedly have a profound impact on the global market. However, while it will inevitably increase global competition in the SOP market, we expect that the unique supply and demand dynamics in the SOP market will buffer the impact on international suppliers.The policy shift will have a profound impact on the SOP marketChina may be best-known in the fertilizer industry for the transformational impact it has had in phosphate fertilizer market in the last 20 years. That market has demonstrated the effects of runaway investment in production capacity and the subsequent tipping of the equilibrium in a market the size of China can have on the global economy. The spill-over effect in the form of high volumes of fertilizer exports has dragged prices lower, particularly in the last five years. A similar scenario has also played out in the urea market in recent years, with large volumes of Chinese exports keeping international prices low.Historically import-dependent for potassium fertilizers, China's deficit in potassium resources has limited possibilities of a repeat in potash markets. China will remain import-dependent for supply of potassium chloride (MOP) which accounts for approximately 90% of the global potassium fertilizer market. December's announcement will have a limited impact on this segment of the market. However, the move will have profound consequences on the Chinese and global SOP markets (estimated by CRU at 4.3 Mt and 7.0 Mt in 2018 respectively).The rapid development of the SOP industry in China in the last ten years led to the establishment of the world's largest and some of its lowest-cost SOP producers. Since then, Chinese SOP exports have been limited by the export tariff since which was intended to limit the exportation and depletion of strategically important national potassium resources. Its removal has therefore come as a surprise to many industry observers and may lead to a more established export pattern of SOP from China into international markets. While this will fundamentally transform the mechanics of the global SOP market, we do not expect that this represents a doomsday for international SOP producers.
This could be bad news for the Australian SOP sector. At the very least it might lead to some hopefuls revising down their predictions for SOP prices.
As it stands we have RWD using US$500/T, AMN US$550/T and KLL US$606/T. Everyone agrees that the NPV is most susceptible to SOP pricing.
