Domestic Potash Fertilizer Prices Continue to Increase

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Recently, China Agricultural and Sinochem rushed to import the potassium chloride contract with the BPC in the second half of 2011 before the Indian importer grabbed the contract: the contract price was CFR470 USD/ton (Cash, advance loading and unloading discount was 20 USD/ton, which was the same as before. For example, the average import prices of potassium chloride in Canada, Belarus, Jordan, and Israel in April were 404, 406, 403, and 395 U.S. dollars per ton, respectively, which was higher than the market’s previous forecast of 450 U.S. dollars per ton, compared with the import contract price in the first half of 2011. It rose 70 US dollars / ton, an increase of 17.5%; the amount of import contracts was 480,000 tons, plus the amount of contracts that 12 million tons of both parties could choose to implement, totaling 600,000 tons; the contract volume was the same as in the first half of the year, and was at a relatively low level; However, the current demand for potash fertilizer in China is better than the beginning of the year, so the volume of import contracts in the second half is lower than expected.

According to the usual practice, other international potash suppliers will follow the BPC's contract price to sign contracts with Chinese importers. Canpotex will work with Sinochem to revise its import prices in the second half of the year, and the contract volume estimate is mainly based on the three-year memorandum. In 2011, it will be approximately 1 million tons. The APC and Sinochem's cooperation memorandum states that the total supply in 2011-2013 will be 1.8 million tons.

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China successfully signed a long-term import contract for potassium chloride before India, but the import volume was lower than expected. Currently, the strong international short-range potash fertilizer market is entering a new round of price increase process. In June, Brazil successfully rose by another US$30 to US$550/ Tons (large customers). In terms of long-term contracts, in general, the prices of those who first sign contracts in India and China are lower. The one-year long-term contract in India (with the contract period ending in March) has basically been completed. In May, the import volume has dropped to 69,000 tons, and at the end of May, the port inventory was only 700,000 tons. Therefore, the international market is generally expected to sign India first. contract. However, due to the government's need to comprehensively consider the issue of subsidies and domestic retail prices, the contract has not yet been decided. Zhongnong and Sinochem audited the situation and preempted India to sign a long-term import contract. It is expected that the subsequent Indian import prices will be higher than China's. As before 2009, Chinese importers signed long-term import contracts at the end of the year (early March or September in India), and Chinese farmers once again enjoyed the lowest price in the international potash market. However, China’s imports in the first half of the year and its low social inventory are also one of the reasons why Chinese importers sign import contracts in advance.

However, the import deadline is still a half-year long list, not a one-year long list. The volume is still low. In 2011, the importer and BPC signed an import contract quantity of 960,000 tons (optionally 240,000 tons optional). The quantity was in line with 2008 (signed the contract later than India, the supply of international suppliers was tight) and in 2010 (the market was sluggish, the signing of the global The lowest price is basically the same, which is the lowest level in the past 10 years.

It is expected that other potash suppliers such as Canpotex will not have a high level of contracts. In 2010, the volume of shipping contracts was between 3,400 and 4 million tons. After the merger of the Russian Potassium Uralkali and Silivinit, China’s border trade imports have dropped significantly. In January-April 2011, border trade imported 265,100 tons of potassium chloride, which accounted for 13.57% of the total imports. This compares with the 30% drop in border trade imports from last year. It is estimated that the annual import volume of border trade will not exceed 1 million tons, which is lower than the 1.8 million tons in 2010. It is estimated that the cumulative import of potassium chloride in 2011 will be less than 5 million tons. After deducting 1.98 million tons of potassium chloride imports during the 2009 financial crisis, imports in 2011 were the lowest since 1998.

Chinese potash distributors have not completed their inventory after the financial crisis. At the end of June 2011, the port inventory was below the historical average of about 600,000 tons, while the social inventory was not higher than last year's level. In 2011, the increase in potash fertilizer and potassium production in the domestic salt lake was estimated to be within 700,000 tons. Considering the domestic production and import volume of potassium, as well as the output of small potash fertilizer in Qinghai, the domestic demand for potash fertilizer in 2010 was 10.5 million tons (equivalent to the actual amount of potassium chloride). This year's normal agricultural weather, dealer confidence has been restored, the domestic demand for potash fertilizer will rise steadily. Therefore, the volume of import contracts in the second half of 2011 was lower than expected. Correspondingly, the issue of domestic potash supply shortage in the first half of the year will not be effectively alleviated. From a quantitative point of view, it is expected that the contract for the import of potassium chloride for 2012 will be signed by the end of December 2011.

At the beginning of the year, the international potash price will complete a new round of rising domestic "man-made natural disasters." As a result, the demand for fertilizers has been unusually high for two consecutive years. Potash fertilizer exports are subject to high tariffs throughout the year. Therefore, Chinese importers who sign import contracts in the off-season have suffered losses for two consecutive years. In mid-January of 2011, international potash fertilizer suppliers changed their negotiation strategy to “swiftly resolve and shift to other markets” in response to this situation. Therefore, one-year-long pots were changed to six months, and the import volume was also low. China's import of potassium chloride in the second half of 2011 remains the same, but the supply and demand situation in the international market is better than the beginning of the year. Therefore, it is inevitable that the international potash market will achieve a new round of price increase.

The large cycle of agricultural and agricultural resources fluctuates, which also supports the international price of potash fertilizers. The current recovery of chemical fertilizers lags behind agriculture: the financial crisis of 2009-2010, natural disasters led to agricultural production cuts, agricultural product price increases and fertilizer demand declines, and prices fell; high agricultural product prices in the second half of 2010 stimulated a comprehensive rebound in the domestic and foreign fertilizer market; Grain crop income support fertilizer prices continue to make up for the price of agricultural products. Among them, the international potash fertilizer supplementation space is large: the unique pricing system under the monopoly pattern determines that the price of potassium fertilizer lags behind, but the foundation is solid and the risk is small, and there will be no cyclical fluctuations; the international urea and DAP raw material costs are much lower than in 2008, and the potash fertilizer costs Unchanged, profit rebound rate is lower than nitrogen and phosphate fertilizers. Potashcorp’s valuation has increased from 10 times in history to 17 times, which reflects the expected increase in potash prices.

Potash supply and demand situation also support the international potash fertilizer prices. Resource properties determine the international potash supply is tight: due to lack of infrastructure in resource-rich areas, potash fertilizer extraction and production technology are not mature, so the investment cycle of potash fertilizer projects is long, and high investment and high risk in the early stage (history costs determine the profitability of existing projects); After Russia's two potash fertilizer companies merged, the high industry concentration of oligopoly was further enhanced. The new entrant EUROCHEM project was completed as early as the end of 2013. In 2015, the new potash fertilizer project in Argentina was delayed. According to IFA data, domestic potash fertilizer production growth slowed down before 2013, both of which originated from existing enterprises. The effective global supply of potash fertilizer increased by 3.1 and 6.8% in 2011 and 2012 respectively. If the project progress does not reach expectations, the effective supply growth in 2012 will increase. Is 0. The international potash fertilizer demand growth is large: Historically, agricultural products have had low gains compared to other commodities, future prices will have been high, crop income will support price increases for potash fertilizers, and population growth and improved food structure will also boost output of agricultural products, which in turn will boost potash demand; In the major agricultural development countries such as South America and Asia, there is a widespread problem that the proportion of potash fertilizer is low, and scientific fertilization will also further boost the demand for potash fertilizer.

Canada's new potash project feasibility report shows that: the project breakeven point is 500 US dollars / ton, the current potash fertilizer prices are still the new entrants into high-risk industries, the price of the bottom line. It is expected that the unit investment in the Rio Colorado project in Argentina will be twice as high as in North America and the production cost will be higher. At present, China's imports have not been fully restored (after domestic dealers have gone into inventory, they have not yet realized restocking), and India’s imports have fallen into a downturn, that is, there is still room for growth in follow-up demand. In May 2011, North American stocks of potassium chloride were below the 5-year average (the overall inventory level was low during price increases and production cuts) of about 15%. Therefore, the current tight supply pattern of international potash fertilizer is self-evident; in the long term, the international potash fertilizer industry has increased its monopoly degree, and the “insured price” capability of “input and production” is stronger. The confirmation of long-term import contracts in China and India will trigger a new round of international potash price increases.

We predicted in 2010 that “the international potash price will increase to US$500/ton by the end of 2011” and will be achieved ahead of schedule in the first quarter of 2011. According to foreign suppliers, the price of potassium chloride is expected to rise to 600 US dollars/ton by the end of the year.

Domestic pricing mechanism for potash fertilizers returned to normal, and import contract prices will drive domestic prices to continue to rise. As we judged, in early October 2010, the price of port potassium chloride rose from 2,200 yuan/ton in July lows to 2,850 yuan/ton in the same month (equivalent to long singles). The contract price for imported potassium chloride was $350 and it has been stable until early 2011. In mid-January of 2011, the import contract price was increased to US$400/tonne. After the Spring Festival, the price of potassium chloride in the port began to increase to over 2,900 yuan/ton; in the first-phase fertilizer preparation stage, the downstream distributors who continued to lose for two years were worried that the peak season will once again encounter natural conditions. Disasters, and the new contract was concentrated in Hong Kong in April. As a result, the price of potassium chloride in the port after May 1, 2011 rose to RMB 3,020/ton (equivalent to US$ 400/ton) as expected, which was better than the market’s pessimistic expectation. However, this year's domestic potash stocks are low, and imports are relatively low. Spring plow farmers use fertilizers to concentrate the demand for potash fertilizers. As a result, the price of potassium chloride in ports has risen to 3170 yuan/ton, which exceeds the normal profitability of potash importers. However, taking into account the increase in labor and port incident charges in recent years, in fact, the excess returns of importers are not as significant as before.

After two years of fluctuation, domestic demand for potash fertilizer is expected to return to normal. The domestic potash fertilizer gap has been around 50% for a long time. Therefore, the mechanism of “import contract price determines domestic prices” will return. The stable potash fertilizer price not only stabilizes dealer expectations but also is suitable for long-term investment in the capital market.

In the second half of 2011, the contract price of imported potassium chloride was US$470/ton. Considering the 1% customs duties on imported potash, port miscellaneous expenses, reasonable costs for import companies, packaging, labor, insurance, etc., as well as reasonable profits of importers, we judge the port potassium chloride. The price will rise to 3440 yuan / ton. However, considering that the arrival of import contracts in the second half of the year will be after August, the actual increase in domestic prices will be after August.

Considering the international potash fertilizer market situation comprehensively, it is expected that the 2012 import potassium chloride contract signed at the end of 2011 will increase by 40-70 U.S. dollars per ton, and the corresponding port potassium chloride prices will be 3700 and 3890 yuan per ton respectively.

Buying Salt Lake shares: The actual increase in performance in the second half of the year will be faster than the increase in prices. In the first half of 2011, the sales price of potassium chloride realized by Salt Lake shares will lag behind the market price level. The financial sales volume of potassium chloride in the third quarter will accelerate to the market. The price is closer, and the 4th quarter mainly reflects the level of the import contract price in the second half of the year. At the bottom of the industry in 3Q10, the company had high potash stocks. At the same time, in order to complete the merger's performance requirements, the company signed a large number of sales orders with customers. Although the follow-up requires customers to make up, but still lagging behind the current market price. As a result, the financial sales price for the fourth quarter of 2010 was 2213 yuan/ton, which is equivalent to the market level in July. In 2011, the company adopted the new billing method and the old billing method. As a result, the average financial sales price in the first quarter was about 2,500 yuan/ton, which is equivalent to the level in the third quarter of 2010. According to market dealers' reports, Facing the continued rise in market prices, Salt Lake has decided at the end of May to fully increase the price of low-price orders in the previous period to 2,800 and 2,900 yuan per ton. Therefore, the sales price realized in June will accelerate the catch-up of market prices, which will be clearly reflected in the third quarter, and the fourth quarter will begin to reflect the import contract price of US$470/ton.

Salt Lake shares not only usher in the continuous rise in potash prices, but also the sales of potash fertilizers will continue to rise. In 2011, the pattern of the potash fertilizer market continued to increase, and there was no problem with sales of salt lakes. The short-term rail transportation problems that the market worried about in the early period are actually the problems of the transportation capacity and the fluctuation that the company faces every year. In late May, the capacity has been restored, and the daily traffic volume reached 0.7-1 million tons, which is higher than the normal production and sales level. The company's output will exceed 2.5 million tons this year, and high inventory will determine that the sales will be higher than the output. The company's annual target is more than 2.7 million tons, and we will judge it will reach 3 million tons. Last year, the rainfall brought "natural solid-liquid conversion" to increase the existing resource reserves and production capacity for over-production. The company has spent many years in solid-liquid conversion technology breakthroughs, which is expected to drive the annual production capacity of potassium fertilizer to reach 3.5 million tons next year, compared with 3 million tons of sales. , Equity production increased by about 20%.

It is reported that the domestic market generally expects the company's non-operating income to be less in 2011, that is, there is still a large amount of lagging in returning value-added tax after 100% of the first levy. Different from the simple understanding of the market, the reason for the return of VAT lags in the following: The tax bureau guarantees a steady increase in tax revenues and refuses to accept income. The follow-up financial department is still normal, and there is no possibility of long-term lag. In fact, the company does not pay value-added tax and brings the relevant small taxes (taxes actually collected by local finances) not to pay. It should be slightly better for the company's cash flow and investment value, but the market actually reflects negative. In the second quarter, the company received some tax refunds from potash companies in the fourth quarter of 2010 and the first quarter of 2011. Non-operating income will increase significantly in the first quarter of the previous quarter. In the face of the continued upward growth of potash fertilizer, the reasonable basis for the valuation of Salt Lake shares will be the performance of VAT when it returns.

The company's Salt Lake Resources Phase I and Phase II projects are based on raw materials without cost, natural gas and electricity prices are very cheap, and profitability is worry-free; the problem is that multiple product processes are interconnected and the commissioning cycle is long. The 100,000-ton metal magnesium project put into operation in 2013 has obvious advantages. The magnesium production process replaces the traditional ones and is accompanied by the injection of coking coal resources. Therefore, the comprehensive utilization of salt lake resources will significantly accelerate the growth of company performance after 2013. It is estimated that the company's sales of potassium chloride in 2011-2013 will be 300, 320 and 3.5 million tons respectively, and the sales prices of potassium chloride will be 2959 (market price), 3455 (Germu's ex-factory price) and 3748 (Golmud's ex-factory price) yuan/ton, respectively. Considering that the Group's comprehensive utilization of resources in phases one and two started to generate benefits in the fourth quarter, the corresponding EPS was 3.1, 4.34 and 5.37 yuan. The turbulence in the potash industry ended. The increase in the price of potassium chloride in 2011-2012 was to compensate for the increase in the international market. As a result, there was no cyclical fluctuation (the price rose slowly, there was no situation of skyrocketing and plunge in 2008), and the company’s investment value was estimated. On the basis of value, the “annual performance under expected potash fertilizer prices” should be used, ie low prices in the first quarter of 2011 have become history. Based on the performance sensitivity analysis in the following table, a 6-month target price of 79.4 yuan will be offered, which still has a 32% upside compared with the current price, giving a "recommended" investment rating.

In the early stage, the market was simply worried about “little non-reduction problems”. At present, the “little non-pegging” of the lifting of the ban can be divided into three categories, and there is little pressure on actual reduction. For the first time, China Construction Bank and China Construction Bank respectively hold 62.75 million shares and 32.9 million shares, there is no pressure on the secondary market to reduce share prices, and the second is to account for more than 80 million shares in the four accounts of the Guangdong-US Huamei System. Judicial freeze; three of its more than 30 accounts hold a total of about 3 million shares, basically have little effect on the market.

Buying Guannongguchi: 2011 results released on schedule, profitability still has room for growth. The initial construction of Lop Nur in 1999 began with a potassium fertilizer project. With experienced changes in shareholders, under the leadership of a professional management team, the government of Hami invested 350 million yuan in 2004. On the basis of Yuan Xiutong Highway, the **potassium project started construction in 2006 was completed in December 2009, and after two years of debugging, it was basically completed in the fourth quarter of last year. Unlike the simple understanding of the capital market, the actual project progress is better than the progress of the general potash project. However, during the commissioning process, high fixed costs caused by low loads, and abnormal fluctuations in potash prices in the past two years, Luo Kok Company began to release its performance in the first quarter of 2011. Guannong held 20.3% of shares, and obtained 9400 in the first quarter. Million investment income.

Luo K company did not have a large amount of inventory last year, the sales were basically normal, and the financial realization price basically followed the market increase. The domestic potash fertilizer market has returned to normal, and the high added value of **potassium corresponding to potassium chloride is reflected (the market price gap is 400 yuan/ton, partly due to high prices**). In the first quarter of 2011, Potassium Corporation's **potassium price was more than RMB 3,100/tonne, and it has now reached RMB 3,500/tonne, and will follow up with the increase in the price of potassium chloride.

Potassium Potassium Actual sales still have 75% room for growth in the future. Since the production cycle is different from the initial design, the company currently has two sets of **potassium-based equipment with actual capacity of 1.6 million tons. The new 600,000-ton/year **potassium project will be built in the second half of 2011 and will be built normally two years later. At present, the price of potassium continues to rise, and the company's comprehensive utilization of tail-salt production of potassium-magnesium fertilizer will also be profitable. An annual output of 1.2 million tons/year of potassium-magnesium fertilizer is also planned.

The agricultural assets processing business of Guannonggufen's main business is low, and the quarterly and annual earnings fluctuations are large, and it is still not possible to cover the fixed costs such as finance brought by foreign investments. Since 2011, the company has made breakthroughs in the expansion of mineral resources in Xinjiang, and has continuously acquired two gold mines, which will make up for fluctuations in future profitability of the main industry. The second-level power station of the Kaidu River Hydropower Co., Ltd., in which Guannong shares holds 25% of shares, will be completed this year. The investment income will double next year. There will still be four power stations in the future.

It is estimated that the sales of potassium in Luo K company in 2011, 2012 and 2013 were 150, 160 and 1.6 million tons respectively, and the selling price (Hami car price) was 3288, 3700 and 4025 yuan/ton, respectively. It is 1.4, 2.04 and 2.46 yuan. Luo K company ** Potassium scale growth space is greater, the top industry mining resources of Guannong shares leading to valuation increases. The valuation basis of the company's investment value should use the “annual performance under expected potash fertilizer price”. Based on the sensitivity analysis in the table below, the target price of 40.8 yuan will be given for 6 months, giving “recommendation” compared to 21% growth in current price. The investment rating.