A surplus of fertilizer in China is causing "constant downward pressure on prices", the country's main distributor of imported nutrients has said, as critical talks with foreign groups on potash supplies drag on.

Sinofert, the listed arm of state-owned chemicals giant Sinochem, said that production rises coupled with a slump in farm demand had prompted a "serious oversupply" of fertilizers in China.

In potash, prices had plunged by 39% from their 2008 peak to RMB2,800 per tonne in June,  Sinofert said, reporting that its own sales of the nutrient had slumped 61% to RMB 2.16bn in the first half of the year. By volume, sales tumbled 71%.

"The considerable increase in potash production, plus huge [amounts] of imported potash jointly led to an oversupply situation in China's potash market," the company said.

Sensitive time 

The comments come amid protracted negotiations between China, the world's biggest potash consumer, and foreign fertilizer groups over fresh foreign supplies.

India stunned the market in July by negotiating potash at $460 a tonne, a 26% reduction year on year, and well below the $700 a tonne that some Asian countries, including Japan, agreed to pay North American producers weeks before.

Analysts are expecting China to come away with an even lower price.

China Securities believes that the country could survive without any imports this year, given carryover stocks from 2008 at 6.8m tonnes, domestic production at 3m tonnes and consumption pegged at less than 7m tonnes.

'Bumper harvests'

Sinofert's overall sales tumbled 44% to RMB12.5bn for the January-to-June period, dragging the group into a loss of RMB840.0m compared with a RMB1.25bn profit a year before.

"The domestic fertilizer market is oversupplied, with prices constantly under downward pressure," it added.

However, the company forecast that China's fertilizer market would return to growth in "in the next couple of years", helped by the government's spending spree of RMB716bn on the rural economy.

"The Chinese government will continuously support the agricultural sector to enable bumper harvests and [the] constant increase of farmers' income," Sinofert chairman Liu De Shu said.

Sinofert shares closed up 3.8% at HK$4.18 in Hong Kong.

The results made no mention of Sinochem's bid for Nufarm, the Australia farm chemicals distributor.