Year in Review
First-half demand deferrals contributed to pricing pressure; fundamentals improved in the second half
Elevated potash inventories and delayed settlements in key contract markets led to cautious buyer behavior and limited shipments during the first half of 2016. This weaker demand environment put substantial downward pressure on prices in all key markets.
Potash demand improved significantly in the second half following the settlement of contracts with buyers in China and India. Along with increased shipments to key contract markets, demand in Latin America and Southeast Asia accelerated due to supportive crop economics and lower potash inventories. In North America, farmers increased application rates in response to strong affordability and a significant need to replenish soil nutrients. Amid improved market fundamentals, spot prices rose in the second half from the lows experienced earlier in the year.
We estimate global potash deliveries were approximately 60 million tonnes in 2016, down slightly from the previous year. Importantly, farm-level consumption was strong and inventories at both the producer and distributor levels in many regions ended 2016 lower than in 2015.
Weaker prices were the primary contributor to lower gross margin compared to 2015. Our sales volumes of 8.6 million tonnes trailed the 8.8 million tonnes sold in the previous year, with an increase in domestic sales more than offset by a reduction in offshore shipments.
Improved affordability and lower inventories expected to support increased demand
We expect strong affordability and agronomic need will support potash fertilizer consumption growth of approximately 3 percent in 2017. Along with lower dealer inventories to begin the year, we anticipate global shipments between 61 million and 64 million tonnes, with growth occurring in nearly all markets.
As we have seen in previous years, demand typically rebounds after a year of later-than-normal contract settlements, and we expect 2017 to be no exception. With lower nutrient retail prices and strong agronomic need in India, reduced inventory levels in China and robust palm oil economics expected to support demand in Other Asian countries, we anticipate meaningfully higher shipments to these standard-grade markets.
In Latin America, favorable crop economics are expected to support strong shipments as we continue to see growing consumption driven by acreage expansion and higher application rates. In North America, fertilizer presents a compelling value proposition, and the need to replenish nutrients following a record harvest is expected to support demand.
In this environment, we expect potash sales volumes in the range of 8.7-9.4 million tonnes and gross margin between $550 million and $800 million.