Potash: The End of Profits or Will End

The BPC sales alliance that lasted nearly 8 years in 2013 was broken due to a unilateral announcement by Russian Ural Potash Corp., and the international spot price of potash fell all the way, and the price fell by more than US$100/ton within one year. The major potash fertilizer suppliers are still expanding their production capacity. It is estimated that the global potash production capacity in 2017 is expected to increase from the current 50 million tons to 59.6 million tons. The excess production capacity is inevitable. This also indicates that the huge profits of potash fertilizer will end.

As the only potash fertilizer company listed by the reporters, Salt Lake will reach 4 million tons by the end of 2014. In the future, the company's potash fertilizer capacity will be expanded to 5 million tons per year. This will also gradually change the domestic supply pattern of potash fertilizer. In 2013, Salt Lake's operating income decreased by 2.13% year-on-year to 8.095 billion yuan, achieving a net profit of 1.052 billion yuan attributable to the parent company's owner. The year-on-year decrease was 58.32%.

The company said that in 2013, the price of potassium chloride decreased by 11.91% year-on-year. The Company's potash fertilizer business achieved sales revenue of RMB 6.245 billion, a year-on-year decrease of 11.91%, and contribution of gross profit of RMB 4.315 billion. In 2013, the price of potash fertilizer dropped sharply due to the destocking of downstream customers and the withdrawal of Ural potash fertilizer from BPC, etc. The average sales price of potassium chloride was 1,904.22 yuan/ton (excluding tax), which was a decrease of 568.83 yuan/ton from the same period of last year. The addition of 1 million tons of potassium chloride project in September 2013 put the company's production and sales of potassium chloride to a greater extent. In 2013, the company's production of potassium 326.57 million tons realized sales of 3,329,600 tons will increase by 413,700 tons over the same period of last year. It is worth noting that as the production capacity of the new capacity of the production company, potassium chloride, decreased from 680 yuan/ton in 2012 to 588 yuan/ton in 2013, the gross profit rate of potash fell only 3.41% to 69.09%.

Although the decline in potash fertilizer business income was not significant, the loss of chemical engineering projects dragged down earnings. The company stated that in 2013, the sales revenue of the company's chemical products reached 1.85 billion yuan, a year-on-year increase of 56.65%, which was mainly a result of the comprehensive utilization of project construction and the trial implementation of new breakthroughs. The combined use of chemical phase 1, ADC foaming project, and lithium carbonate project totaled a loss of 1.197 billion yuan, of which an impairment loss of 595 million yuan from the previous year was 442 million yuan more than last year, which was mainly due to the inventory depreciation provision for the company's chemical products. We compared several projects of biurea, methanol, PVC, and potassium hydroxide with a loss of 667 million yuan in 2012. As the project operating rate increased, the loss in 2013 was 209 million yuan.

At present, the global demand for potash fertilizer continues to grow steadily due to the global population growth, consumption escalation in emerging markets, and changes in China's chemical fertilizer application structure. The overcapacity of the oligopolistic industry will not change in the potash fertilizer industry for many years. In recent years, the excess surplus capacity of potash fertilizer has been high, and the future cost curve of potash fertilizer will become very gentle. The profitability of major companies in the industry has narrowed down, and Salt Lake has a strong cost advantage as a typical low-cost production capacity. At present, the price of potash has basically bottomed out. The future potash price will reflect the full cost of the enterprise, which is estimated to be between US$300-350/ton and will rise to US$380/ton by 2018. If price wars occur between oligopolists, the price of potash fertilizer can be low. To $250 if the oligopoly order is strengthened prices can rise to more than $420.