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China ended Thursday potash producers agonizing wait for an annual potash contract as the country, the world’s largest buyer of fertilizer ingredient, signed an overdue deal with Belarusian Potash Company (BPC).
BPC, the trading division of state-owned Belarusian miner Belaruskali, said the consortium of Chinese firms agreed to buy potash this year at $219 per tonne, 30% less than what they paid in 2015.
The price gives little hope to the beleaguered potash sector and it’s rather seen by analysts as a sign of how low expectations for the sector have fallen.
Contract came months later than usual, with prices for the crop nutrient hovering around the lowest levels in a decade due to oversupply and soft demand.
The annual agreement with China has traditionally acted as a benchmark for producers as the contract sets a global floor for prices, and the lack of such deal during the first half of 2016 severely hit demand and sales volumes.
Russian potash miner Uralkali said in June that the absence of a supply contract with China was a factor behind the “cautiousness among customers who took a wait-and-see approach, delaying purchases”. Before that, Canada’s PotashCorp (TSX, NYSE:POT) blamed the “deferral of new contracts in China” for cautious buying in other regions.
India, which usually signs its yearly potash deal after China, was unable to wait this long and last month inked a $227 a tonne agreement with BPC. Israel Chemicals did not wait either and signed this week a deal to sell potash to India for the same price than BPC’s, the lowest price in a decade and about a third less than last year’s level.
Analysts expect that other top producers, such as Uralkali and Canpotex — the marketing arm for PotashCorp. Mosaic (NYSE:MOS) and Agrium (TSX, NYSE:AGU) — will soon ink their own deals with China.
Despite a slower first half of the year, potash demand is forecast to improve for the last six months of 2016. Adverse weather conditions affecting planting in Asia, however, will make overall consumption fall again this year, compared to 2015.
As a result, analysts predict that potash prices will stay in the $200 to $300 range for the next several years.
Comments
Altaf
Potash is no different from other commodities. All the commodities have turned up from lows. Not all at the same time. Some early, some later. Potash’s turn also will come.
The only factor not working for Potash until now is weak demand. With El Nino gone this year, demand will pick up and sunny days will return to producers.
Its good that China and India are booking potash at cheaper prices. Once the market improves, the financials of the producers will also improve.