Major Events in China’s Potash Fertilizer Industry

By Qi Zhaoying and Wang Jihui, Potash Sub-Association, China Inorganic Salts Industry Association

A Overview in 2012

1) Progress and Setbacks
Known soluble potassium (KCI) reserves rose from 930 million tons in 2011 to 1.07 billion tons in 2012; capacity (K2O) rose from 4.79 million tons to 5.4 million tons; demand (K2O) rose from 6.61 million tons to 7.89 million tons.
   Output and imports changed only a little. Both the output (KCI) and imports (KCI) reached 5.99 million tons in 2012, declining slightly compared with 6.04 million tons and 6.4 million tons last year.
   Potash fertilizer prices fell. For example, KCI prices decreased from RMB3 400/t at the beginning of 2012 to RMB2 620/t at the end of the year. Furthermore, profits also shrank in 2012.
   China’s potash fertilizer industry operated normally in 2012, and output satisfied 50% of the demand.

2) Imports
On March 20, 2012, China ended 1H talks on potash imports with a negotiated price of USD450/t (CFR) and signed import contracts that will satisfy its demand for potash fertilizer in the spring sowing season, ensuring stable agricultural production.

3) Price Shocks
Since September 1, 2012, Qinghai Salt Lake Industry Group Co., Ltd has adopted a “co-reserve and co-sale” strategy, cutting the prices of KCI in different concentrations by around RMB170/t firstly, then providing a discount of RMB130/t to storage customers, making “60% KCI” prices decrease to RMB2 820/t, forcing foreign countries to lower their potash prices. After winning the potassium sulfate purchase bidding of Yunnan Tobacco Company with a price of RMB2 828/t on September 20, 2012, SDIC Xinjiang Luobupo Potash Co., Ltd issued new potash prices for normal distribution channels. Prices of “51% powder potash” fell RMB460/t to RMB2 950/t, a price that shocked the domestic potash industry, and even the whole fertilizer market. The downward trend did not stop until late November, accompanied by a persistent rumor that border-trade import of potash fertilizer would be suspended.

Comments: China’s potash industry had to combat market slowdown in the first three quarters of 2012, and the momentum of falling prices has never been stopped. But two state-owned enterprises cutting prices significantly at same time surprised the industry, especially in 2012, when state-owned potash companies held a market share of more than 50%. It’s worth thinking about.

4) PCS, a Canadian Fertilizer Giant, Intends to Purchase More Shares of Israel Chemical
Canadian fertilizer giant PCS, which aims to own more shares of Israel Chemical, is negotiating with Israeli government officials. At present, PCS holds a 14% stake in Israel Chemical; 52.3% is held by Israel Corporation Ltd (ICL).
   In addition, PCS holds a 26% share of Arab Potash Company. If the proposed purchase is successful, PCS will boast 25% of the world’s total capacity, and increase exports to India and China. However, there is much uncertainty due to a strict anti-monopoly investigation. In accordance with an agreement signed between Israel Chemical and Chinese importers in March 2012, Israel Chemical will export 550 000 tons of potash fertilizer to China, valued at US$258.5 million.

Comments: Most of the world’s potash resources are in Canada, former Soviet Union and the Middle East, controlled mainly by Canpotex, IPC and ICL. If PCS increases its stake in Israel Chemical successfully, the potash resources will be overly concentrated in something of a monopoly.

5) Xinjiang Kumul-Luobupo Railway Put into Operation
On November 29, 2012, the Xinjiang Kumul-Luobupo railway was put into use, which relieves the transportation difficulty facing Xinjiang potash enterprises, and reduces transportation costs to around RMB70/t from more than RMB150. In addition, SDIC Xinjiang Luobupo Potash Co., Ltd finished building a 1.2 million t/a potassium sulfate plant – the world’s largest – located in Luobupo. In 2012, the output of the plant reached more than 1.3 million tons, with the capacity expected to increase to 3 million tons three years later.

Comments: As SDIC Xinjiang Luobupo Potash Co., Ltd is a leading enterprise in China’s potassium sulfate industry, its transportation issues have been attracting public attention. Benefiting from the Kumul-Luobupo railway, the transportation difficulty – a bottleneck that curbs the company’s development – is solved, and transportation costs are lowered, which enables the corporation to adjust prices more freely. Furthermore, it is of significance to stabilize the nation’s potash supply and prices, and to improve the country’s potash fertilizer self-sufficiency.

6) Go-global Strategy
The 200 000 t/a potash unit of Uzbekistan Dehe Kana Bade Potash Fertilizer Plant was put into operation in 2011. And the second stage of construction there, a 400 000 t/a potassium chloride unit, has been activated. Designed by China BlueStar Lehigh Engineering Corp, and constructed by CITIC Construction Co., Ltd, the unit is the first one that China has completed outside the country, marking a key step toward foreign markets.
   In recent years, domestic enterprises have actively searched for potash resources abroad. In Laos, four Chinese companies have constructed potash production units, and they boast a combined capacity of 800 000 tons. In the Republic of the Congo, two Chinese firms are active. In Canada, there are three. As the pioneer of the three, Zhongchuan International Mining Holding Co., Ltd has explored 903 million tons of potash reserves and completed the initial design of a 3 million t/a potash fertilizer plant. In Thailand, the Chinese Taihantai Group was granted potash mining rights by the national government in 2012, laying a solid foundation for future development.

Comments: The domestic demand for potash fertilizer is satisfied mainly by a combination of domestic products, imports and potash resources from bases established by Chinese enterprises in foreign countries. While domestic products and imports will play more important roles, the potash resources obtained overseas and external branches are indispensable for sustaining the potash supply.

7) China’s Potash Enterprises Made Progress in Developing Slightly Soluble Potash Resources
On April 26, 2012, a ceremony was held to celebrate the completion of first-stage construction of the Potassium Feldspar Development Industrial Park, located in Wenquan Town, Yuexi County, Anhui Province. As one of Yuexi County’s three major plants, which will cost RMB500 million, provided by Anhui Huayue Mineral Material Co., Ltd, the potassium feldspar project is set to become a competitive potash feldspar finemeal production base in East China, a high-quality building material production base in southwest Anhui, and a national research & production base for potash fertilizer.

Comments: Owing to the shortage of soluble potash resources, potash enterprises have paid increasing attention to the development and application of slightly soluble potash resources. With a technical breakthrough in the field of potash feldspar-type slightly soluble potash resources (soil conditioner), potassium silicon-calcium fertilizer (soil conditioner) is superior to others in improving soil. In addition, potassium silicon fertilizer, which is vital for the country to make up for the insufficiency of domestic soluble potash resources, also has advantages in adjusting soil acidity.

8) Technical Achievements
KCI: In July 2012, Qinghai Salt Lake Industry Co., Ltd announced that the world’s first 100 000 t/a potash fertilizer production unit adopting the hot-melt technology was put into operation in June, and around 30 000 tons of KCI from trial production has been launched into the market. With the hot-melt technology, enterprises could transform low-grade crude ore to sylvite, which will be used as raw material to produce KCI. The grade of KCI made by the hot-melt technology reaches around 98%, 5%-7% higher than products of the direct flotation technology. Granularity exceeds 0.4mm. Ore dressing recovery exceeds 95%. This suggests that the hot-melt technology, which produces high-quality KCI from low-grade crude ore, is mature and capable of significantly improving the resource utilization rate of the company.
   Sulfate-potassium magnesium: The 150 000 t/a sulfate-potassium magnesium technology reform and optimization project, co-conducted by the Qinghai Institute of Salt Lakes, the Chinese Academy of Sciences and Qinghai CITIC Guoan Lianyu Potash Co., Ltd, passed its acceptance check. The project adopts technology that produces sulfate-potassium magnesium by making use of potassic sulfate ore, with decomposition and transformation realized at normal temperatures. Original technology, transformed by heating and screening out sodium, is optimized by a flotation separation technique. Benefiting from new technologies, the potassium yield coefficient rose from 30% to 66%, energy consumption was reduced 40%, water consumption dropped 50% and production cost decreased RMB300/t.
   Potassium carbonate: In November 2012, the technology for producing potassium carbonate with carbon dioxide recovered from flue gas of the coal-fired boiler of Chengdu Chemical Co., Ltd passed a critical test, replacing the conventional lime kiln method and saving 1 800 tons of standard coal a year while reducing the production of carbon dioxide, sulfur dioxide and solid waste. The technology is applied to the demonstration project of making heavy potassium carbonate by using industrial waste gas, which is funded by the central government.

9) New KCI Standard “GB6549-2011” Went into Effect
On June 1, 2012, the State’s new criteria for KCI, “GB6549-2011” became effective, replacing GB6549-1996. In contrast with the original standards, Clause 4.1, KCI and Water Project in Table 1 of Clause 4.2, Chapter 6, Clause 7.1 and Clause 7.2 are mandatory provisions, and the remaining parts are recommended criteria.

10) Adjustments in Import and Export Duties
On December 10, 2012, the Customs Tariff Commission of the State Council issued new import and export duties for potash fertilizer and relevant potash products in 2013, loosening restrictive tariffs on exports; decreasing phosphorite export quotas; ammonium chloride, imposing specific duties on KCI and potassium sulfate instead of ad valorem duties; and decreasing the tax rate of small-package (lower than 10kg) fertilizer by 2%.

Comments: The change from ad valorem duties to specific duties on KCI and potassium sulfate attracted the most attention. Though enterprises are still subject to export tariffs of RMB2 000/t, the rate has dropped compared with 2012 when the export tax rate was 105%.

B Prospects in 2013

China’s potash supply (K2O) is expected to be 10 million tons in 2013, with the self-sufficiency rate fluctuating around 50%. Barring surprises, KCI (60%) ex-works prices will be RMB2 600-2 800/t. And enterprises in the business of potassium sulfate, nitrate of potash, potassium carbonate or potassium hydroxide will achieve reasonable profits according to their production costs. The potash industry is expected to:
1) promote the industrialization of insoluble potash resources
2) enhance the application of potash resources from seawater
3) import potash fertilizer based on China’s demand, and implement the strategic reserve plan, taking advantage of low international sylvite prices
4) realize product differentiation (For example, the industry could produce high-quality potash fertilizers like potash magnesium sulfate fertilizer by making use of limited domestic soluble potash resources.)
5) promote the export of processing-type potash fertilizer such as Mannheim potassium sulfate, and of high-end potassium products used in industry, foods, pharmaceuticals, electronics, etc. At present, both the export volume and output of China’s high-end potassium products are quite low. It is suggested that the State should propel the export of fine potassium products through relevant export tariff policies.
6. improve the added value of fine chemical products like potassium carbonate and potassium hydroxide so as to seize overseas market shares