The global fertiliser market is solid due to strong global demand and the growth of prices for crop nutrients. Despite some initial sluggishness, potassium sulphate (SOP) pricing replicates gains witnessed in the MOP market. A similar market trend will most likely be continued throughout the rest of 2022.
The global potash market has come alive in 2021 as rising demand, poor international crop yields, surging crop prices and margins and supply-side risks in Belarus have combined to drive regional potash prices up 200%-300%. Although SOP prices initially remained relatively flat, they surged to their highest levels in a decade by the end of the year, with the FCA NW European benchmark hitting €770 /t (US$875 /t) in January 2022.
The rapid ascent in MOP prices has been the principal driver behind SOP. Besides that, robust SOP price growth was primarily driven by China’s fertiliser export barriers, including the sulphate of potash. Further supporting high prices was also tighter supply caused by the lower than planned output of budding producers in Australia.
Sulphate of potash market dynamics
he SOP market continues to be heavily impacted by the MOP pricing dynamics. MOP price heavily impacts the production costs for SOP secondary producers (chemical production via the Mannheim process). February 2022 CRU short-term forecast for global potash markets indicates spot prices are still expected to climb higher on significantly tighter supply from Belarus and new China and India contract settlements likely to be agreed in the coming weeks. The Ukrainian crisis’s ongoing developments also cause an additional layer of market uncertainty. There are increasing speculations of a possible new round of sanctions aimed at the Russian Federation, a globally significant producer of MOP and other fertilisers. Such development would substantially affect global nutrient supply, drive up MOP price and cause an additional increase in SOP pricing.
Besides the MOP market influences, the SOP price continues to be impacted by the absence of Chinese SOP exports due to the standing government’s decision to increase the fertilisers export barriers. Presently, it appears that China won’t be considering export barrier removal before H2 2022, which could effectively continue to limit Chinese SOP exports trough out the rest of the year (in particular, if the share of Chinese Mannheim producers decides to limit or stop SOP production due to high MOP input costs).
Robust SOP pricing is further supported by lower than planned production from Australian brine projects. Despite the surge in optimism about several Australian SOP projects coming online in 2021, some market players have faced further delays. Salt Lake Potash (SO4) directors declared the company insolvent and entered it into voluntary administration. That left Kalium Lakes the only Australian SOP producer, primarily focused on the domestic market with limited export plans in 2022. That indicates that tight SOP supply will remain a market reality over the year, thus maintaining conditions that favour high SOP prices.
Colluli benefiting market developments
Given the interplay of mentioned market factors, it could be expected SOP prices to persist throughout much of 2022 despite a possible decline in overall demand due to less favourable affordability (Combined impact of decade-high SOP prices and tighter export availability. Much of the decline we expect to occur in the Chinese domestic market.).
This bodes well for overall Colluli project economics. The Colluli NPV is most sensitive to SOP price and WACC. For every 10% increase in SOP price, Colluli Project NPV increases by US$250M (FX: AUD: USD, $0.70). The current NPV in the Colluli FEED study uses US$569/t for standard grade SOP and applies a 10% price premium for its granular grade premium product.
Colluli will sell 56% of its production as standard grade and 44% as granular (premium grade). The long-term outlook for the weighted average netback price to Massawa for the target markets of Colluli SOP is US$668. Such prices are well above the long-run average price in the Colluli FEED. Given that and the fact that Colluli will be in the bottom quartile of the cost curve, it is clear that the project has significant value-creation potential.