What does 2023 hold for Belarusian potash exports?

What does 2023 hold for Belarusian potash exports?
/ bne IntelliNews
By bne IntelliNews January 12, 2023

Dmitry Chernyakov, director of Belarus’ largest mineral fertiliser producer Gomel Chemical Plant, told the corporate newspaper of Belneftekhim Holding that the plant had refocused its exports to Russia and China. Due to Western sanctions, Belarus has been unable to get most of its potash fertilisers to international costumers due to being cut off from its traditional transport routes through EU ports.

According to Chernyakov, Gomel Chemical Plant lost as much as 95% of its exports in March 2022 due to Western sanctions; these exports accounted for 70% of the plant’s total revenues. Chernyakov told the corporate newspaper that 360,000-430,000 tonnes had to be refocused from the Ukrainian market due to the war; the plant managed to refocus 200,000 tonnes of its exports to Russia.

Chernyakov added that Belarus had maintained its presence on the European fertiliser market despite sanctions. In order to remain on the EU market, the potash component of the NPK fertilisers was removed; the NPK fertiliser production line was instead changed into nitrogen and phosphate products. While difficulties still exist with payments (due to all major Belarusian banks being disconnected from SWIFT), Belarus had at least preserved its presence on the EU market. In August 2022, President Alexander Lukashenko told his deputy prime minister that Belarus should not leave the European fertiliser market.

Regardless of the sometimes hostile and nonchalant rhetoric of some Belarusian officials regarding EU sanctions, the EU market is still vital for Belarus’ export sector. Last week, bne IntelliNews reported on how Belarus uses Central Asian countries to get around Western sanctions. This shows that Minsk has no plans to withdraw its SOEs’ exports from the EU market for now. If the products are sanctioned, the product line or label will either be changed, or they will work around sanctions using third countries.

Chernyakov also mentioned that Belarus’ fertiliser sector had broken into another market alongside intensified sales to the already existing Russian and Chinese ones - the Libyan market.

On January 5, First Deputy Prime Minister Nikolai Snopkov told state Belarusian media that Belarus will organise direct shipments of potash fertilisers to African and Latin American costumers without EU intermediaries in 2023. Snopkov added that Belarus’ problem isn’t demand, but rather the need for new export routes. Switching from the Lithuanian port of Klaipeda to Russian ports has entailed high transport costs for Belarusian potash producers. The “groundwork” to solve this problem had already been done, according to Snopkov.

In 2021, and especially last year, Belarusian state media paid much attention to the question of finding new ports for the country to export its oil and potash products from. The information from Belarusian officials has been vague, but Belarus is reportedly working with as many as 19 Russian ports to get its goods to the global market.

However, since Russian ports need first and foremost to export Russian products, their capacity is severely limited to taking care of Belarusian products. Therefore Belarus is also constructing its own port facilities in the Leningrad and Murmansk regions, a costly endeavour which is likely to take a lot of time. Lukashenko himself recently emphasised the need to build these ports faster.

Snopkov also told reporters of a new strategy which Belarus might employ to make its potash more internationally competitive. Since fertiliser prices have been high throughout 2022, Belarus could lower its price to sell at a discount on its traditional markets. Overall, Snopkov expected the price to end up at around $420-$450 per tonne in 2023.

This analysis was not shared by Nutrien chief executive officer Ken Seitz in his interview with Bloomberg in early December 2022. According to Seitz, about 60% of the anticipated new production of potash for the next five years was going to come from Russia and Belarus. Seitz believed that Belarusian and Russian producers had exhausted their alternatives in finding new trade routes and would still struggle with reaching global markets in 2023.

In 2022, potash prices in Brazil more than halved compared to the prices in late 2021, since farmers simply stopped buying fertilisers due to the high costs. Instead, farmers began using their stored fertilisers, which Seitz believe they are now beginning to run out of. Seitz expected farmers worldwide to jump into the market to restock, and prepaid sales of fertilisers are already 15-20% higher in December last year compared to 2020.

Lowering its prices, or lower prices overall, should also have a substantial effect on Belarus’ profit margins. According to Chernyakov, his plant already incurs losses from exporting mineral fertilisers to Asia and South America due to the high delivery costs.

Belarus was eager to resume its potassium deliveries to Brazil in 2022. In April 2022, Belarus sent a delegation to hold negotiations with the Brazilian government, Parliament and the Confederation of Agriculture and Livestock of Brazil. However, it appears to have been largely unsuccessful. Higher delivery costs seem to have overshadowed even the 60% discount mentioned by Belarus’ ambassador to Brazil.

Between January and September 2022, Belarusian potash had gone from making up 20% of Brazil’s potash imports to merely 9%. As of August 2022, the cumulative import of Belarusian potash by the rest of the world had decreased by 50% year on year.

In early May 2022, Brazil’s agriculture minister declared fertilisers a matter of national security and said that Brazil would look into developing its own production to begin exploiting the largest potash mine in Latin America. This means that Belarus’ may permanently lose large parts of the Brazilian market to domestic Brazilian production.

When it comes to foreign competition, Canada is taking over Belarus’ market shares. In 2022, Canada increased its share in Brazil’s imports to 37% (from 31% in 2021), likely at the cost of Belarusian exports.

The provincial government of Saskatchewan promised in June 2022 to step up its supplies to fill the void left by Belarusian and Russian products. In September 2022, Saskatchewan legislature introduced new amendments to The Crown Minerals Act, The Subsurface Mineral Royalty Regulations, 2017 and The Mineral Taxation Act, 1983. The amendments were intended to reduce the amount of royalties payable on potash production for eligible new mines and came into force on January 1, 2023.