China agrees potash deal, raising hopes for prices

Hopes rose that potash prices had, after plunging by one-quarter, reached a bottom as China signed a long-awaited import deal with Uralkali, the Russian fertilizer giant which kicked off the market tumble.

Uralkali revealed it had agreed to sell 700,000 tonnes of potash at $305 a tonne to a Chinese consortium headed by CNAMPGC, the domestic distributor of fertilizer, agrichemicals and plastics.

The price compared with $400 a tonne Chinese buyers paid a year ago, before Uralkali sent prices tumbling by in July breaking up the Belarusian Potash Company cartel through which it and Belarusian peer Belaruskali marketed export supplies and was responsible for more than 40% of world trade.

Prices have since dropped to some $300 a tonne on the Vancouver export market, as buyers delayed purchases in the expectation of yet-lower values, a trend that spread into other fertilizer markets, such as phosphate and nitrogen, too.

'Positive development'

However, Chinese deals are viewed as typically setting a market floor, with the country, as the top importer, negotiating the lowest prices, and second-ranked buyer India generally paying a little more.

Monday's deal "achieves price discovery, and likely signifies the bottom of a potash price decline", said Cantor Fitzgerald analysts, forecasting a "slow recovery [in prices] in the months and year ahead".

"It is a positive development for the industry," the broker said, adding that the potash value achieved was a little above the $300 a tonne that analysts had predicted, and raising to $35.00, from $31.00, its target price for shares in PotashCorp, the Canadian potash giant.

Uralkali - which in July, as it announced the BPC break-up, foresaw prices falling to $300 a tonne or lower - said that the Chinese order "clearly testifies to growing demand and the beginning of market recovery".

'Better price discipline'

In fact, Chinese buyers' willingness to settle for $305 a tonne comes amid other signs of a market bottom too, with Uralkali earlier this month announcing a rise from March to $350-360 a tonne, from $320-330 a tonne, its sales price for potash in the important Brazilian market.

Uralkali has also allied with Canpotex, the North American consortium which includes PotashCorp among its members, in pledging to defend $300 a tonne as a price floor.

This agreement "is a clear signal of better [price] discipline", Credicorp Capital said.

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