(Potash Corp. article updated to provide analyst commentary and for closing Potash Corp. stock prices.)
NEW YORK (
) -- Potash producers in North America agreed to sell a big chunk of their crop nutrient to a Chinese distributor at "competitive prices," which may indicate a widely hoped-for bottom to the precipitous decline in potash rates since the recession began.
Though the price wasn't disclosed, the "competitive rates" phrasing likely means that the North American companies -- a marketing consortium called Canpotex that includes
Potash Corp. of Saskatchewan
-- have agreed to sell their product to Chinese buyers for the same $350-per-ton price agreed to by a similar Russian potash consortium in December.
At the time, the Russian group's deal disappointed potash partisans, who had been hoping that demand for the fertilizer had increased enough for the negotiating advantage to have passed into the hands of producers. Instead, the Russian group "caved," as one analyst put it, agreeing to sell its stuff for $350 a ton, well below the previous going rate.
In some ways, Canpotex also caved in its negotiations with China, some analysts say. Its members, after all, had struck a diffident stance ever since the Russian deal in December, telling investors and others that they would never accept a price as low as $350 a ton. ($385 a ton was the suggested low point.) Now it appears they have.
The contract signed by Canpotex on Monday with Sinofert, a Chinese fertilizer importer and distributor, covers about 350,000 metric tons of potash, good for the rest of the first quarter. Interestingly, Potash Corp. owns 20% of Sinofert, whose stock is traded in Hong Kong and on several European bourses.
Canpotex struck confident tones in its press release issued Monday morning. The group said it will announce "plans with respect to second-quarter pricing early in March, after thoroughly reviewing the changing and much-improved overseas potash market conditions."
and investors punished the company's stock. Some analysts said that Wall Street expectations were far too optimistic, given all the downward pressure on potash prices.
The next big test will come in March, when India comes back to the market looking to buy potash under a supply contract with Canpotex that would cover the rest of 2010. India could end up purchasing more than 4 million tons of the potassium-based crop nutrient -- a volume so substantial that it may give India's buyers the upper hand in price negotiations with Canpotex, said Charles Neivert, an analyst at Dahlman Rose in New York.
Also, a gap could potentially open if China doesn't buy any more North American potash after its first-quarter contract expires and if India decides to delay a deal. That would mean a period of weaker sales volumes for Canpotex's members, an unwanted circumstance that could also play into the buyer's hand when negotiating a price. "If India doesn't show up, things get wild," Neivert said.
A year ago, India struck a deal with Canpotex at $460 a ton. This year, speculation has it that India's buyers will likely come to the table with a low-ball number -- perhaps less than China's perceived benchmark of $350.
Over and above foreign supply prices, the outlook for potash companies from here also depends largely on whether farmers in North America decide to use potash in their fields during this spring's planting season. Last year, hurt by tumbling crop prices, most chose not to.
Potash shares closed Monday's regular session at $101.51, down 2%. Shares of Mosaic shares lost 1.2% to $54.54, while Agrium gave up nearly 2% to finish at $57.77.
-- Written by Scott Eden in New York
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Scott Eden has covered business -- both large and small -- for more than a decade. Prior to joining TheStreet.com, he worked as a features reporter for Dealmaker and Trader Monthly magazines. Before that, he wrote for the Chicago Reader, that city's weekly paper. Early in his career, he was a staff reporter at the Dow Jones News Service. His reporting has appeared in The Wall Street Journal, Men's Journal, the St. Petersburg (Fla.) Times, and the Believer magazine, among other publications. He's also the author of Touchdown Jesus (Simon & Schuster, 2005), a nonfiction book about Notre Dame football fans and the business and politics of big-time college sports. He has degrees from Notre Dame and Washington University in St. Louis.