WINNIPEG, Manitoba, Nov 18 (Reuters) - Potash miners, facing another round of tough negotiations with big buyers in China and India, are looking to support sinking profits by boosting sales of higher-margin specialty products, according to top executives.
The pink fertilizer’s price has fallen sharply this year, under pressure from bloated capacity, soft grain prices and weak currencies in Brazil and India, spurring Potash Corp of Saskatchewan, Mosaic Co and Belaruskali to slice output.
Miners face further pressure as they start talks in coming weeks with China’s Sinofert Holdings Ltd for a 2016 supply contract, which generally sets a global price floor.
But with few expectations of a rebound soon, potash executives are looking beyond production cuts.
ICL Israel Chemicals Ltd plans to tap more profitable products, Chief Executive Stefan Borgas said in an interview.
The company will accelerate production of premium-priced polyhalite, a mineral with several nutrients, at its United Kingdom potash mine, he said. ICL is targeting production of 1 million tonnes of polyhalite, also called polysulphate, by 2020, up from its previous target of 600,000 tonnes.
“We are trying to accelerate this switch because polysulphate is so much more profitable than MOP (common muriate of potash),” Borgas said.
ICL is also redrawing plans to develop an Ethiopia deposit to first produce sulphate of potash (SOP), a premium potash suitable for fruits, instead of MOP.
For Mosaic, low potash prices could lead it to boost sales of specialty products that combine micronutrients.
“The more we can de-commoditize our product offering, yes, the better off we’ll be,” said Chief Executive Joc O‘Rourke.
Potash Corp is also looking at less-explored options. Chief Executive Jochen Tilk said he is open to diversifying into new products, including some unrelated to fertilizer.
He did not specify which products, but Potash recently made an unsuccessful attempt to buy Germany’s K+S AG, which produces salt and SOP along with conventional potash.
On the surface, diversifying looks appealing, said Daniel Manuel, potash analyst at consultancy Fertecon.
But the premium SOP commands in its sliver of the overall potash market would evaporate if production jumped, he warned, adding that diversifying into other commodities comes with high costs of takeovers or developing projects.
In the meantime, buyers are taking a hard line.
Two Indian potash importers, speaking on condition of anonymity, said they have demanded discounts for this year’s contracted sales, although sellers have balked.
In the U.S. Midwest, where potash is used extensively to fertilize corn, dealers are reluctant to stock up.
“They had this feeling that potash is right across the street in (Canada). I don’t need to worry about it,” said Joe Dillier, director of supply and merchandising at Growmark Crop Nutrients.
However, potash demand in Brazil began to recover late this year, said Carlos Heredia, supply chain director at Yara Brasil , although the pace remains below 2014.
While times are bleak, agricultural price cycles turn suddenly, Mosaic’s O‘Rourke noted.
“When all the pundits are saying ‘the cycle will never end’ is normally when there’s a change.” (Reporting by Rod Nickel in Winnipeg, Manitoba; Additional reporting by Rajendra Jadhav in Mumbai, Caroline Stauffer in Sao Paulo and Dominique Patton in Beijing; Editing by Chris Reese)