The economic basis of potassium carbonate price bullish theory is variable

The bulls believe that the higher the demand for food in China, the greater the demand for fertilizers. This will soon drive manufacturers to raise prices. However, the Chinese government can enjoy the increase in productivity and reduce fertilizer use. What's more, self-sufficiency is just a choice. Perhaps one day, China will find it better to give up self-sufficiency.

The decisive factor in China’s $40 billion bid battle around Canadian fertilizer merchant Potash POT.TO. Potassium carbonate is a fertilizer? The key compound of the surface, and the population of the largest country - China is the driving factor of the price of potassium carbonate. As China becomes more affluent, dietary needs will increase, and fertilizer use will inevitably rise. Soon, producers such as Potash will raise prices. However, this attractive and simple logic may also prove to be a mistake for Potash to resist the key factors that BHP Billiton BHP.AX acquires and defends its own value.

At present, the price of potassium carbonate is about 350 US dollars per ton. For a long time before, the price of potassium carbonate was less than half of the above price, until 2008. It climbed and hit a 1,000-dollar high. Analysts who have valued Potash currently use long-term potash sales estimates of around $400. With Potassium carbonate prices rising by US$50 each, Potash’s value will increase by about US$6 billion.

The long position contains such a logic. As China’s population continues to grow, the demand for meat is getting higher and higher, and its food needs should increase. The trouble is that the historical growth rate of chemical fertilizer usage may be high. China used almost no chemical fertilizers 50 years ago. But now that the catch-up period has basically ended, historical trends cannot be used to predict the future.

At the same time, it is not necessary to increase the amount of potassium carbonate, and crops may still increase production. For example, the use of machinery to improve fertilization efficiency, integration of a large number of small-scale arable land. In addition, more and more adoption of transgenic seeds will further change the yield.

However, the most important assumption is that China will always want to produce its own food. China pursued grain self-sufficiency since the mid-1990s. However, the "vegetable basket" policy is only an option, not a last resort. In fact, some crops have begun to use imports: China's demand for half of soybeans is met by Argentina.

In the long run, it is reasonable to increase the import of agricultural products. Given the large number of labor force in China and the lack of farmland, which is suitable for growing fruits or fruits, is it not suitable? Things. Continuous inefficiency? Plant cultivation adds little value, requiring subsidies and wasting scarce water resources. Is the amount of potassium carbonate needed for this type of cultivation more suitable than soil? The country where the things grow.

It is not that the theory of price increase is wrong. China's potassium carbonate imports will almost certainly increase. But whether this will push up prices depends largely on Chinese policy makers. Potash investors should not be blinded by the rich imagination.