By Polina Devitt and Rajendra Jadhav and Roberto Samora
MOSCOW (Reuters) – Global potash prices will spike protracted after the United States imposed sanctions on major supplier Belarus Potash Company (BPC), putting pressure on farmers and consumers already facing rising costs and an inflationary global economy of food.
Fertilizer prices, which play a vital role in crop yields, were already at 13-year highs before a US decision on Dec. 2 and are expected to rise further, potentially slowing the pace of soy acreage growth in the Brazil in 2022/23, the world’s largest producer and exporter of the oilseed, analysts said.
A pause in the increase in planted area in Brazil, which uses a lot of potassium in the process of converting pastures to soy crops, could interrupt several years of planting growth and potentially further support soy prices.
Sanctions on BPC would make the world more dependent on other suppliers, such as Canada’s Nutrien Ltd, the world’s largest potash producer.
The company could bring its plant’s idle capacity back to market if necessary, a Nutrien spokesman told Reuters.
Nutrien shares have risen 6.6% since the BPC sanctions were announced and hit a record last week.
BPC did not respond to a request for comment from Reuters. Another major supplier, Russia’s Uralkali, declined to comment.
BPC is the export arm of Belaruskali, the world’s second largest potash producer. The US blacklisted Belaruskali and added the BPC to its sanctions list as the West intensified punitive action against Belarusian President Alexander Lukashenko.
Potash exports are an important source of foreign currency for Belarus.
Washington has given BPC’s clients – which include India, China and Brazil – until April 1st to close their business with the company. US sanctions will prevent the BPC from accessing dollar-based financial services, making it difficult to trade in international markets.
After sanctions were imposed, the BPC said it would work within existing legal frameworks, but did not give further details. Prices of other fertilizers, such as urea and phosphate, have also risen this year, as record prices for natural gas and coal have led to production cuts in the sector.
Reducing fertilizer application could lead to lower crop yields at a time when food commodity prices are at 10-year highs and food inflation is a major problem around the world.
IMPACT ON GLOBAL PRICES
Global spot prices for potash are at 13-year highs of around $650 a ton, following an increase in agricultural commodity prices and a recovery in demand this year.
The record price for potash was set in 2008, when deals were signed at around $800 per tonne, said VTB Capital analyst Elena Sakhnova.
In Brazil, potash spot prices could rise to US$900-950 per tonne in the first quarter of 2022, up from US$800 per tonne recently, Marcelo Mello, director of the StoneX fertilizer desk in Brazil, told Reuters. Values jumped more than 230% since January.
Potassium is needed to grow many crops, including soybeans, rice, corn, fruits, vegetables, palm oil and wheat.
Furthermore, it improves the resistance of crops to diseases, droughts and promotes higher crop yields. It cannot be replaced by phosphate or nitrogen based fertilizers.
Mello also believes in demand destruction in Brazil and the United States, with prices climbing.
“Increase in the area of soy in Brazil next year (2022/23) will be difficult. A lot of potassium is used in new areas (where there were pastures before). Everyone will use less potash, we will need to see demand destruction,” he said, citing the tight market despite expected production increases from other global producers like Nutrien.
India’s potash consumption and imports could decline if potash prices rise further due to sanctions on the BPC, an industry official in India says. BPC typically signs annual supply contracts with India, with the most recent deal signed in January. “We are trying to solve the problem or at least find a temporary solution,” another senior industry official in India told Reuters. China gets 20% of its potash imports from Belarus. Prices in the world’s biggest consumer are also high, despite the recent release of part of China’s potash reserve.
“Potassium supply remains tight, with imports still limited and port inventories falling,” said Humphrey Knight, senior potash analyst at CRU consultancy, on China.
BPC’s ability to supply customers could also be hampered by logistics, with landlocked Belarus relying heavily on Lithuania’s Klaipeda port to export potash, he added. Russia, which remains Belarus’s ally, does not have enough spare port capacity to handle BPC’s 12.5mt/y volume. Lithuania continues to transport potash from Belarus by rail to the Baltic port, for the time being, under a pre-signed contract and prepayment for December and part of January.
However, public pressure on state-owned companies to comply with US sanctions is increasing in Lithuania, a country that is one of the biggest critics of human rights abuses in Belarus. The United States is a strategic partner for Lithuania.
(Reporting by Polina Devitt in Moscow, Rajendra Jadhav in Mumbai, Rod Nickel in Winnipeg, Emily Chow in Beijing Beijing, Roberto Samora in São Paulo and Andrius Sytas in Vilnus)
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