Allana - China in Play ?? todays news .. from Morgan Stanley
Watch China for demand trends in potash. That’s the message from Morgan Stanley in a voluminous report, China’s Appetite for Protein Turns Global, which is a study of the country’s food demand in the years ahead.
China at present produces between 3.5 million and 4 million tonnes a year of potash, the Morgan Stanley report says. That’s about 6 per cent to 7 per cent of global share (which is estimated to be 57.5 million tonnes in 2011). But China looks likely in 2011 to have imported 6.1 million tonnes. That gap looks set to widen considerably in the years ahead.
Morgan Stanley expects Chinese domestic output to reach 5 million tonnes by 2014. By 2015, global output of potash is projected to be 74 million tonnes with China producing 6.6 per cent of that.
“Among the three main fertilizers (nitrogen, phosphate, and potash) we believe potash has the strongest outlook,” the report added. In the past, Chinese farmers have over-applied nitrogen and under-applied potash due to the latter’s high price. Morgan Stanley believes that, through education, Chinese farmers will slowly begin to understand the benefits of balanced fertilization. The lower application of potash in the past may have aggravated the potassium deficiency in arable soils: more potash is needed to compensate for this.
Between 2007 and 2007, Chinese potash demand expanded at a compound annual growth rate of 10.3 per cent. Demand dropped in 2008 and 2009 (the GFC mainly). Demand began to recover in 2010 and Chinese purchases in 2011 have been limited by the present shortfall in global supplies.
But things are moving: Morgan Stanley predicts Chinese imports for 2011 will reach 6.1 million tonnes - that’s up 16 per cent on 2010. But, because demand is still below pre-2008 levels, the authors are saying that import demand will rebound further to the tune of 7.3 million tonnes in 2012.
Yet the sum total of 2011 potash contracts with China fell short of what the country wanted, leaving a large pent-up demand moving into 2012. Through to 2020, China is expected to be a major source of growth in global potash demand. It all has to do with an expanding middle class which brings with it increased grain and protein consumption, all of which support the thesis of grain yield optimization through increased fertilizer use.
And that will impact on prices. The report notes that China makes potash purchases through a global contracting process with the main global suppliers. Historically, this has been an annual - and then semi-annual - process. Prices to Chinese buyers now sit at $US470/tonne. But Morgan Stanley expects this price to move significantly higher in 2012. Its reasons: one, the most recent price to India of $US530/tonne likely presages a similar move for shipments to China; two, global pricing momentum has the potential to hike what China and India are paying to to $US600/tonne next year and beyond.
In the long term, all the signs favour potash demand as Chinese farmers grow more high-value cash crops (such as fruits) which require a higher content of potash in the fertilizer mix. Morgan Stanley says it is estimated that half of China’s potash consumption is on high-value, potash-intensive crops such as fruit and vegetables.
IMHO .. I believe multiple investments from China/India and more ... very soon .
