(This story appears as part of a special package highlighting the global potash industry.)
* Chinese demand seen on gradual growth path
* Monsoon cuts Indian fertilizer demand 5-7 pct
* North America, Brazil demand stable to higher
By Rod Nickel
WINNIPEG, Manitoba, Sept 24 (Reuters) - Demand for potash is expected to rebound gradually in China, North America and Brazil in the coming months as economic conditions improve and the crop nutrient’s price stabilizes at more affordable levels.
But India will likely use less of the nutrient after the driest monsoon season in nearly four decades disrupted agriculture in much of the country.
In China, the world’s largest importer, modest stirrings of global demand are appearing. Consumption in the world’s most populous nation is seen slowly returning to the levels that prevailed before a sharp drop last year, when global grain prices plummeted from record highs.
That said, any increase in demand is likely to draw down internal inventories, which many analysts in the region see as sufficient through next spring. This could mean that China will stay away from the potash import market until well into 2010.
“Demand for potash is steadily growing as well as for (the) fertilizer industry as a whole, but I don’t see any catalyst that can boost demand all of a sudden,” said Lawrence Chor, an analyst at Taifook Research, referring to Chinese consumption.
For much of the past year high fertilizer prices and weaker grain prices have undermined demand for potash, one of the key minerals in synthetic fertilizers along with nitrogen and phosphorus.
Chinese consumption could total 8 million to 9 million tonnes next year from an estimated 6 million tonnes this according one estimate.
Eventually demand could grow by 7 to 8 percent annually if prices hold steady, Chor said.
Sinofert (0297.HK), a leading Chinese importer and its largest fertilizer distributor, is in no immediate rush to buy more potash as its inventories are bloated, Chor said.
Sinofert Chairman Liu De Shu has said he sees a rise in demand within two years.
By contrast, fertilizer use in India is set to drop 5 to 7 percent as the country’s driest monsoon season since 1972 crimps demand, said U.S. Awasthi, managing director at Indian Farmers Fertiliser Co-operative Ltd (IFFCO).
That reduction will cause fertilizer imports by India, the world’s third-largest user of the nutrients, to fall 17 percent in the year ending in March 2010, Awasthi said.
The current benchmark potash price of $460 per tonne reflects contracts signed in July by major Indian importers, including Indian Potash Ltd, the country’s No. 1 importer. At $460 a tonne, the potash benchmark is well below last year’s contract price of more than $600 and the spot market price of $700 at the time.
India had secured about 5.5 million tonnes of potash at $460 a tonne, with an option to buy more. But Indian Potash, 34 percent of which is owned by IFFCO, is unlikely to buy more this year because of the impact of the weak monsoon, Awasthi said.
In North America, autumn demand could prove strong if farmers stave off a crop-killing frost and fertilizer prices weaken further, said David Asbridge, president of St. Louis, Missouri-based NPK Fertilizer Advisory Services.
“I think farmers are going to be feeling a bit better,” Asbridge said, adding that grain prices have declined but remain relatively high.
North American farmers cut back on fertilizer applications last autumn, balking at high prices. The United States accounts for about 14 percent of global potash demand.
To be sure, some analysts aren’t sure demand will rebound this year.
Earlier this month, Citigroup lowered its ratings on the shares of fertilizer producers Potash Corp of Saskatchewan POT.TO and Mosaic Co (MOS.N) (MOS.N) to “hold” from “buy,” citing the likelihood of limited fertilizer application this autumn among its concerns [ID:nN14501206].
U.S. corn belt farmers are tightening spending with corn prices falling, Citigroup analyst P.J. Juvekar said.
In Canada, fertilizer demand is stable but margins are weak, said Mayo Schmidt, chief executive of Viterra Inc VT.TO, a leading grain handler and fertilizer distributor.
Fertilizer demand in Brazil, the world’s fourth-largest consumer and third-biggest importer, is expected to total 22.4 million tonnes this year, unchanged from 2008, industry sources said. Many farmers still face credit constraints from the financial crisis.
Grain prices in the coming months will play a key role in determining fertilizer demand. Brazilian producers have just started planting the 2009-10 soy crop, which accounts for a third of Brazil’s demand.
Demand in the longer term in Brazil should rise by 4 percent a year starting in 2010, above an expected global average of 2.5 to 3 percent, due to Brazil’s potential to become the world’s breadbasket, said Ruben Fernandes, director of fertilizers and industrial minerals at Brazilian mining company Vale VALE5.SA (VALE.N).
“Demand will grow for sure as Brazil could become the most important agricultural country. We don’t have water scarcity nor land restrictions (and) we can have two crops in a year,” Fernandes said.
He added global potash carrying stocks from 2008 into 2009 were consumed. “It’s now time to rebuild them,” he said. (Writing and reporting by Rod Nickel in Winnipeg, Manitoba; With reporting by Michael Hirtzer in Chicago, Donny Kwok and Moxy Ying in Hong Kong, Bharghavi Nagaraju in Mumbai and Inae Riveras in Sao Paulo. Editing by Frank McGurty)