Industry comments
The conflict between Russia and Ukraine tends to ease, but the struggle between the United States, Russia and other countries remains the same. Military conflicts are gradually turning into economic conflicts, and a series of changes will take place in the international economic pattern. Therefore, we conduct in-depth analysis on the economic impact after the conflict between Russia and Ukraine. This chapter mainly focuses on potash fertilizer:
Russia is a major exporter of potash fertilizer, and its potash fertilizer output ranks third in the world. In terms of output, according to NRCan data, the output of potassium chloride in Russia accounted for 20% of the global total in 2020. In terms of export volume, the export volume of Russian potassium chloride in 2020 was 10.84 million tons, accounting for 19% of the total global export trade. Among them, more than 90% are produced and exported by Ural, Russia’s largest potash producer. According to the Urals annual report, the proportion of local sales in Russia in 2020 was only 17.1%. The rest of the potash fertilizer is sold to many countries and regions around the world. In Asia, it is mainly sold to China, India and Southeast Asia, accounting for 37.6%; In the Americas, it is mainly sold to the United States, Brazil and other countries, accounting for 29.6%; Sales in Europe and other countries accounted for 15.8%.
Russia suspended the export of chemical fertilizer, and the global potassium fertilizer gap increased. On March 10, Russia announced its decision to suspend the export of chemical fertilizer. Although Putin said that he would guarantee the supply of imports from friendly countries, the global supply gap will inevitably further increase. The global potash supply is highly concentrated. In 2020, the production of Canada, Russia and Belarus accounted for 69.4% of the total global output. Once Russia suspends its exports, about 40% of the potash supply will be affected by the sanctions imposed on Belarus. Countries and regions whose supply is affected will have to find new potash suppliers, which may change the global supply pattern. The tight global supply has pushed up the price of potash fertilizer further. As of March 18, 2022, the FOB price of potassium chloride in Vancouver was reported to be US $691.5/t, an increase of US $97.5/t compared with March 1, a year-on-year increase of 168.0%.
Under swift sanctions, Russia’s cross-border transactions will be affected, and the potash export trade may be blocked. On February 26, 2022, Europe and the United States jointly issued a joint statement on sanctions against Russia, removing some Russian banks from the swift system. According to the Russian swift Association, a total of about 300 Russian financial institutions use swift, which handles more than 80% of Russia’s international settlement. Although Russia developed SPFS system in 2019 and tried to find an alternative to swift, it has not completely replaced swift at present. At present, swift sanctions are still in the stage of joint statement. If the future sanctions are further clarified, Russia’s import and export trade may be affected, thereby affecting the export of potash fertilizer.
There may be some risks in export transportation. Ural potash fertilizer production base is located in Perm border area in the east of the Russian Federation. Potash fertilizer can be exported by land and sea. In terms of shipping, it mainly relies on the port of St. Petersburg in the Baltic Sea to Southeast Asia, North and South America, India and southern China. In terms of land transportation, it is mainly transported to northern China, European countries and CIS countries through Asia Europe railway. If the sanctions imposed by European and American countries on Russia are extended to the field of cargo transportation, it will be more difficult for Russia to export potash fertilizer. Previously, when Belarus potash was sanctioned, Lithuania’s state-owned railway suspended cooperation with Belarus, and Belarus potash could not be exported. This case fully illustrates the importance of transportation channels. Once the transportation is restricted, the export of potash fertilizer will be restricted on a large scale. Therefore, we need to pay attention to the export and transportation risks of Russian potash fertilizer.
Based on the above factors, the duration of global potash fertilizer shortage will be longer, the price center will move up, and the industry boom will lengthen.
Investment advice
Pay attention to the benefit targets under the continuous tight supply of potash fertilizer industry, such as Asia-Potash International Investment (Guangzhou) Co.Ltd(000893) , Qinghai Salt Lake Industry Co.Ltd(000792) , Zangger mining, Qingdao East Steel Tower Stock Co.Ltd(002545) .
Risk tips
Changes in geopolitical situation, repeated overseas epidemics, exchange rate changes, etc.
