Strategic Thoughts on Development of China’s Foreign-sited Potash Fertilizer Bases

By Yuan Zhaoying, the Potash Branch of China Inorganic Salt Industry Association
and Bao Ronghua, the Ministry of Land and Resources of China

Production in China

The soil in China is generally lacking in potassium. Therefore, domestic production of potash fertilizer has been increasing, and consumption has also climbed constantly. China’s apparent consumption of potash fertilizers increased from 13.19 million tons (100% KCl) in 2007 to 17.675 million tons (100% KCl) in 2014. In the face of all this, it is most unfortunate that China is also comparatively poor in potash resources. China’s supply and demand for potash fertilizers in recent years are listed in table 1.
In the past 6 years, China produced 10%-15% of the world’s potash fertilizers, maintaining around 50% self-sufficiency. The output of major potash fertilizer producing countries has also been growing, especially Canada, Russia, Belarus, Germany, Jordan and Chile. Only 13 countries (including China) produce potash fertilizer, but more than 160 countries consume it. Due to the extreme concentration of production and supply, it is easy to form a global trade alliance, especially for large importers. The profit margin of international potash fertilizer giants is around 100%, while the average profit margin of domestic potash fertilizer makers is much lower. The key reason for this difference lies in the different varieties and grades of potash resources. China’s major potash resources are salt lake brine with lower potassium (potassium being the main development objective) and deep potassium-rich brine (for which China has no large scale exploitation), while the major potash resources in Canada, Russia and Belarus are sylvite with an average grade of around 30%.

Potash fertilizer bases
outside China

As of the end of March 2015, China had 30 potash fertilizer projects that were in different stages of development and operation in around 10 foreign countries. Among those, some projects had been put into operation, some were under construction, some were in the process of tendering for engineering services and some were in the process of exploration and striving for mining rights. The combined planned capacity of these potash fertilizer projects exceeded 10.0 million t/a, however, the capacity that had been built and put into operation was less than 1.0 million t/a. Four of the plants that were already in operation are in Laos, among which Kaiyuan Group’s plant had the largest capacity, 500 000 t/a, and Kaiyuan Group’s plant supplied the domestic market for the first time in 2014 with 110 000 tons of KCl.
China’s foreign potash fertilizer projects are sited mainly in Canada, Laos, Kazakhstan, the Republic of the Congo, Thailand, Iran, Ethiopia, Ural, Argentina and the United States. Seven are in Canada, and the investors of these are Zhongchuan International Mining Holding Co., Ltd, Yanzhou Coal Mining Co., Ltd. and CNOOC, etc. Nine projects are in Laos. Three are in the Republic of the Congo, and the investors are Evergreen Holding Group, Shandong Luyuan Mining Investment Co., Ltd and Dingyi Group Investment Ltd. One project is in Kazakhstan and is funded by Sino-Kazakhstan Futong Potash Co., Ltd.
Among the “going out” potash fertilizer projects, here are five examples: (1) 1.2 million t/a project of Evergreen Holding Group MAG in the Republic of the Congo. (2) 1.2 million t/a project funded by Sino-Kazakhstan Futong Potash Co., Ltd in Kazakhstan. (3) Zhongchuan International Mining Holding Co., Ltd has completed the feasibility study report for a 3 million t/a potash fertilizer project in Canada. (4) Yanzhou Coal Mining Co., Ltd plans to complete the feasibility study report for a potash fertilizer project in Canada in June 2015, the 2.8 million t/a project is underway and is planned for operation in 2018. (5) 1.2 million t/a KCl project of Shandong Luyuan Mining Investment Co., Ltd. which holds mineral exploration rights in the Republic of the Congo; the area is 509 square kilometers, the detailed exploration work has been completed, and the feasibility study report is to be completed in June 2015.

Interdependence among international suppliers

China’s three major potash fertilizer importers – Sino-agri, Sinochem and CNOOC have formed relatively stable and close relationships with major international potash fertilizer producers. Qinghai Salt Lake Industry Co., Ltd. is China’s largest potash fertilizer producer, Sinochem holds a 24% share in Qinghai Salt Lake Industry Co., Ltd, PCS Sales holds a 22% share in Sinochem, and there is a chain director relation between Sinofert Holdings Limited and Canpotex. In addition, PCS also holds a 32% share in SQM, 14% a share in ICL and a 28% share in APC.
Major foreign potash fertilizer producers have set up sales firms through joint ventures, and hold shares of domestic potash fertilizer importers, while domestic potash fertilizer importers hold shares of China’s potash fertilizer producers. Due to this special structure of ownership, although the Ministry of Commerce of China has partially released potash import rights, foreign potash fertilizer exporters did not sign a contract with any enterprises except for Sinochem and Sino-agri a few years ago. However, with the changes in the pattern of supply and demand and in the global economy in general, China’s import of potash fertilizer has changed greatly in the last two years. Five enterprises – CNOOC, Shanghai Agricultural Means Company, Zhejiang Agricultural Means Company and Guangdong Agricultural Means Company – have used CNOOC's import qualification to directly import potash fertilizer from Israeli every year, and the import volume has increased year-on-year, being around 800 thousand-1.0 million tons of KCl. In addition, with the change of Russia’s economic situation, the amount of border trade potash fertilizer has climbed year-on-year, accounting for nearly 1/3 of the total import volume. A new change in 2015 is that several companies led by Heilongjiang Beifeng Agricultural Production Means Group have begun to import white potash fertilizer directly from Canpotex, and Sinochem is now exclusive agent only for Canadian red potash fertilizer.

Conclusion

China is a big potash fertilizer consumer and a key market that the international potash fertilizer giants compete for. Therefore, the price of potash fertilizer is likely to come down further. Compared with international potash fertilizer producers, domestic potash fertilizer enterprises lack competitiveness, while some projects in China’s foreign potash fertilizer bases are very competitive.