Market Talks: Drop in Demand increases Brazilian MOP stocks

Author Argus

High fertilizer prices dropped the demand for Muriate of potash as farmers await to conclude deals and rise MOP stocks.

Join Camila Dias, Argus Brazil Country Manager, and Gisele Augusto, reporter for Argus Brazil Grains and Fertilizers publication, as they talk about the delay on buying and the impact on the Brazilian market.

Keep in touch with the fertilizers market

Transcript

CD: Hello and welcome to ‘Market Talks’- a series of podcasts presented by Argus addressing the events impacting commodities and the energy sector in Brazil and around the world. My name is Camila Dias, Argus Brazil Country Manager. In today's episode, I talk to Gisele Augusto, reporter for the Argus Brazil Grains and Fertilizer publication, about the higher inventories of potash in Brazil. Welcome, Gisele.

GA: Hi, Camila, thank you. It is a pleasure to be here.

CD: Gisele, since March we have been following a greater interest of the global market concerning Muriate of Potash availability for imports. Why are we seeing this movement?

GA: Camila, in the first quarter of this year, specially since February, when the conflict Russia-Ukraine started, fertilizer global market was concerned about the Muriate of potash supply for 2022-23 crops, as Russia is a major producer and exporter of the product. With the conflict, there was concern about sanctions and logistical problems that could hamper the fertilizer’s flow to multiple consuming markets. Besides, the demand for product from Russia, Canada and Israel was already high since the end of 2021, with the European Union and the United States issuing sanctions against Belarus products, another key MOP exporter. So, there was a concern over what was going to happen when stocks from other suppliers, that account for smaller market shares, was not enough to meet the demand.

CD: Talking specifically about Brazil, at the beginning of the year importers and farmers were concerned about the possible shortage in MOP supply this year. But now we see inventories full and an excess of MOP in the domestic market, what has changed in the past months?

GA: First, Brazil took advantage in 2021’s fourth quarter to close great volumes of MOP with the Belarusian potash distributor BPC. At the time, the company was already under sanctions from other countries, but that didn’t affect Brazilian buyers, that could take advantage of the high supply but lower prices as well as initiate negotiations for the next crop. Many of those products were lined-up for delivery in the first quarter but had the export flow interrupted by the conflict in Ukraine. So, most of those volumes arrived with delay in March and, mostly, in April. In addition, in March, many Brazilian importers positioned themselves in the market, seeking to secure volumes for the upcoming months. However, the increase in prices and the prospect of reduced application caused Brazilian farmers to pull back and step out of the market, waiting for lower price levels and assessing the volume needed, which caused deliveries to pile up in warehouses.

CD: You talked about an increase in deliveries and a search by other countries for alternative suppliers to Russia and Belarus. What was the increase in Brazilian imports and was there a diversification or increase in volume from other suppliers?

GA: In April alone, Brazil received 1.26 million tons of MOP, or 84pc above last year's imports for the month. Of that total, Canada accounted for 30pc, raising exports by about 50pc. Soon after the conflict began, Brazil established diplomatic talks with Canada to increase imports from the country, which was already the main individual supplier. The second largest exporter in April was Russia, also doubling its deliveries compared to last year. Finally, deliveries from Germany more than tripled year-on-year, accounting for 12pc of the market.

CD: In Brazil, why there was such concern about the possibility of a decrease in MOP availability?

GA: Camila, there is no news in saying that Brazil is very dependent on imports of fertilizers. And MOP is a nutrient used in virtually all crops, so it does not affect only one crop. Moreover, Russia and Belarus together accounted for half of our MOP imports last year. In other words, any problems for shipping products from these countries could have a stronger impact on our imports.

CD: In previous months we have heard a lot about greater and better soil studies to reduce applications for the 2022-23 crop. Is this movement still strong among farmers as the end of the import and planting window approaches?

GA: There was a reduction in reports of reduced fertilizer volumes. Many farmers realized that they would not suffer from a shortage of fertilizer to the extent they imagined in March. In one hand we have corn growers in Mato Grosso still looking to reduce fertilizer for the 2022-23 crop. Meanwhile, market participants in the Matopiba region expect at least stability in the application, but they don´t rule out an increase in volume, considering that the planted area is expected to increase.

CD: What about the increase in stocks in the country? Is this a specific issue for MOP or do we see the same thing happening with other macro fertilizers? How has the market positioned itself in this matter?

GA: The rise in inventory levels has been reported for all fertilizers. The issue is that the biggest volume is of MOP and this has been holding back new negotiations. On one hand, farmers are seeing full warehouses and are postponing purchases of remaining volumes for the 2022-23 crop, waiting for a fall in prices to close deals. Importers, on the other hand, are staying out of the market because they don't have storage availability for new shipments. There are ships waiting in the port for room in warehouses to berth and unload, while companies with their own warehouses are passing their ships ahead. With this, the market remains without demand and with stable prices. What has concerned importers is how and when the demand for these missing volumes will resume. The concern is whether there will be product available to meet all the demand in a short period, since Brazilian storage capacity is not large, which suggests that even with full stocks, the tonnage of product available is low, and considering that the import window is closing and how this will affect prices. The expectation is that a large part of the volumes will be imported from Russia, since the Belarusian BCP has declared greater strength in exports and the additional volume made available by Canada is little compared to the Brazilian use.

CD: Thank you, Gisele. This and other episodes of our podcast are available on the Argus website at www.argusmedia.com. Visit the page to follow the events that affect global commodity markets and understand their developments in Brazil and in Latin America. We'll be back soon with another edition of “Market Talks”. See you soon!

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