Market and product

The carbon border adjustment mechanism (CBAM) is scheduled to come into effect on 1 January 2026. While the legislation does not directly apply to MOP and SOP, it is likely to create affordability challenges, price volatility and demand shifts across potassium products, with implications for producers and importers.

Based on the anticipated default value for imported Russian NPKs containing more than 10pc nitrogen and the Argus-assessed prompt ETS price on 9 December of €82.64/t, Argus calculates a theoretical CBAM charge of €58.51/t. For Russian NPKs with less than 10pc nitrogen, the CBAM charge is calculated at €37.73/t.

In addition to CBAM costs, NPK imports from Russia — the single largest supplier to the EU — face an EU tariff, currently set at €45/t, which took effect in July this year and is scheduled to increase to €70/t in July 2026. This is likely to lead to further curtailment of Russian NPK imports, which could partially offset some of the resulting loss in demand.

NPK demand is typically slow towards the end of the year, but the introduction of the CBAM appears to have accelerated purchasing in the fourth quarter. A number of EU NPK producers are reported to be fully booked until the end of the year.

In summary, EU producers may encounter affordability challenges driven by elevated input costs, while importers will face CBAM-related price increases compounded by additional tariffs on Russian imports. Together, these factors are expected to contribute to demand erosion and reduced potash consumption.

The CBAM is a regulation aimed at addressing carbon leakage by imposing a carbon cost on certain goods imported into the EU. It applies to all fertilizers containing nitrogen imported from countries that are not subject to the EU emissions trading system (ETS) or a system fully linked to it. As a result, the only potassium product directly covered by the CBAM is NOP.

Although MOP and SOP are not directly affected, they are used in finished fertilizers — primarily NPKs — that fall under the scope of the regulation.

Affordability concerns for NPK producers

According to the Argus Fertilizer Analytics team, the EU has NPK production capacity of around 19.2mn t/yr, and the majority of standard MOP and SOP consumption within the EU is tied to NPK fertilizers. These products are subject to the CBAM because they contain nitrogen and phosphate inputs, although among phosphate products, only DAP and MAP are covered by the mechanism.
The CBAM applies both to NPKs imported into the EU and those manufactured within the bloc. Recent indications suggest that mark-ups on default values for fertilizers under the CBAM will be lower than initially expected. A leaked draft of the approved document shows a mark-up of just 1pc, rather than the anticipated 30pc. This would mitigate the impact on importers by allowing the use of default values instead of plant-specific emissions data.

Despite this reduction, concerns remain regarding cost pressures on EU-based compound NPK manufacturers and blenders, particularly if buyers reject higher prices on affordability grounds. Such resistance could weaken demand for EU-produced NPKs and, by extension, reduce consumption of raw materials such as MOP and SOP.

Imported NPKs will similarly face higher costs under the CBAM, potentially intensifying demand destruction. The EU currently imports around 5.3mn t/yr of NPKs, primarily from Morocco, Norway and Russia.

SOP as a substitute for NOP?

NOP is the only potassium product directly affected by the CBAM. Within the EU, NOP is predominantly sourced from Chile, Jordan and Israel. Based on the expected default values for NOP from these origins and Argus’ assessed prompt ETS price of €82.64/t on 9 December, Argus calculates a theoretical CBAM cost in the range of €93.96–123.17/t.

Under typical pricing structures for potassium products, SOP is generally priced at around twice the price of MOP, while NOP usually commands a premium of approximately three times the MOP price. Significant deviations from these pricing ratios can influence purchasing behaviour. If the premium of NOP over SOP exceeds €150/t, substitution towards SOP becomes more likely. Conversely, if the premium falls below €100/t, demand may shift back towards NOP.

NOP is primarily used in drip irrigation, the production of water-soluble NPK formulations, and greenhouse applications. Although water-soluble SOP can substitute for NOP in certain circumstances, agronomic considerations, in addition to cost implications, remain critical. In drip irrigation systems, NOP is typically applied at the beginning of the growing season, whereas SOP is more commonly used towards the end of the season. In greenhouse or hydroponic applications, substitution may also raise concerns about excessive sulphur levels in crops.

The CBAM will also increase the cost of NOP-based water-soluble NPKs, although the percentage increase is expected to be relatively modest given the high base price of these products, particularly European brands produced in northwest Europe. In some field applications, growers may switch from NOP-based to SOP-based NPKs. However, these alternatives will still face higher costs due to the CBAM’s impact on nitrogen inputs, whether derived from NOP or from straight nitrogen sources.

Northwest Europe is a major production hub for water-soluble NPKs, which are exported both within Europe and to external markets. As a result, producers are awaiting clarification on how European fertilizer exporters will be treated under the CBAM. If these producers are not afforded protection, the mechanism could accelerate the closure of large, centralised production units, whose business models are already under pressure from local blenders in key destination markets.

Demand destruction on the horizon?

Although MOP and SOP are not directly covered by the CBAM, they are not expected to be fully insulated from its effects. Secondary impacts are anticipated through the regulation’s influence on NPKs and NOP. EU-based NPK producers are facing rising input costs, particularly for nitrogen, which could drive up NPK prices and suppress demand, ultimately reducing consumption of MOP and SOP.

Non-EU NPK imports will also become more expensive under the CBAM, while additional tariffs on Russian NPKs may further constrain supply. This tightening of supply could partially offset some of the demand reduction. At the same time, the price of NOP is expected to rise sharply for EU importers, potentially widening its premium to SOP and encouraging substitution where agronomically feasible.

However, substitution options are limited and often costly, especially for SOP-based NPKs, which are themselves exposed to CBAM-related increases in nitrogen input costs. Overall, the CBAM is likely to create significant affordability challenges, increase price volatility, and drive shifts in demand across potassium products.

These pressures are compounded by weak crop prices, which further exacerbate affordability concerns. There is already discussion among some farmers about skipping potash applications next spring. For now, however, EU MOP demand remains broadly normal for this time of year, as it is currently out of season, and no change in purchasing behaviour has been observed ahead of the CBAM’s implementation.