Viewpoint: MOP price to discourage buyers in Brazil

New US sanctions on Belarus potash will likely increase global prices, leading Brazilian buyers to buy lower volumes in early 2022.

In the last five years, Brazilian MOP imports have increased from May-June and remained higher in the second half of the year. The scenario may be a little different in 2022, as importers will need to purchase in smaller batches and more regularly throughout the year to meet the domestic demand while managing financial risks.

Another possible scenario may see more direct contracts with suppliers, which would allow buyers and sellers to better negotiate terms such as prices, volumes and delivery period and avoid the most costly spot market.

Potash prices increased by $550/t in Brazilian ports during 2021, up from $245/t cfr Brazil in early January to $800/t cfr by mid-December. Prices for soybeans and corn increased at a slower pace in Mato Grosso state, as soybeans remained almost flat and corn prices rose by around 15pc in 2021. Barter rates became less appealing to farmers who now had to provide more bags of grain to buy a tonne of NPK in the cities of Sorriso and Rondonopolis, both located in Mato Grosso state.

Since farmers want to keep profits as high as possible, they will likely reduce fertilizer purchases for the coming year. Agronomic assessments might be needed to guarantee the levels of nutrients needed for planting soybeans and corn. Brazilian soil is usually poor in potash, so farmers will need to sign new supply deals to prepare for the next soybean and corn crops.

Global fundamentals point to a price increase at Brazilian ports in the short term because of tight supplies as the third largest global potash supplier, Belarus, comes under US sanctions. The latest sanctions announced by the US Treasury Department sets 1 April 2022 as the deadline for US companies to end business dealings with Belarus Potash (BPC), its subsidiary Agrorozkvit and any firm in which both hold a stake of more than 50pc.

Brazil has not announced any sanction on Belarus, but sanctions imposed by the US government can have an extra-territorial effect, as they exclude BPC and Agrorozkvit from trading in the US financial system. Brazilian importers headquartered in the US and with strict compliance policies may also be required to stop purchasing from Belarus companies.

Belarus accounted for 22pc of Brazil imports in 2020, but its share fell slightly to 19pc in 2021. Canada was the largest importer, with 32pc, followed by Russia, with 29pc. Brazilian imports reached 11.8mn t from January to November, in line with Argus' expectations for Brazil's MOP imports to rise to 12.8mn t from the record-high last year of 11.2mn t.

There are projects underway to increase global potash supply, including Belaruskali's Petrikov mine in Belarus and Asia Potash's Dong Tai plant in Laos, which have completed commissioning and would add a combined 1.25mn t/y in capacity. Russia could also increase its deliveries, boosted by two projects that are underway and that Argus forecasts will be completed in 2022, adding another 900,000t to global supply.

But restrictions imposed on Belarus, varying Covid-19 vaccination rates and levels of recovery in different countries dictate how much Brazil would have to compete with other potash buyers for supplies, especially from Canada and Russia. Another Covid-19 wave can also have a negative effect on the affected country's agricultural sector, followed by a decrease in MOP consumption.

By Renata Cardarelli