Potash Sector Still Waiting On Supply Contracts

Potash Sector Still Waiting on Supply Contracts

The contract reached between Sinofert Holdings (HKEX:0297) and Canpotex, the potash export arm of Potash Corporation of Saskatchewan (TSX:POT,NYSE:POT), Mosaic (NYSE:MOS) and Agrium (TSX:AGU,NYSE:AGU), will see 1 million tonnes of potash exchange hands in the first half of 2013.

The price of the contract, which The Globe and Mail reported is about $400/tonne, represents a decline of $70/tonne from the previous contract signed between Canpotex and China. The agreement is expected to set the tone for other deals signed through contracts and spot-price purchases.

Depressed 2012 fertilizer demand from India and China is a key component of the price decline.

Southeast Asia saw the biggest decline in potash demand in 2012, with a 1.9-million-tonne, or 20.2-percent, fall off compared to 2011, according to data collected by the Financial Times.

India saw the biggest proportional decline, with a reduction of 34.8 percent, or 1.6 million tonnes, in 2012. The drop came on the back of a devaluation of the country's currency and the return of government subsidies for fertilizers.

India is the next big customer in line to ink a deal with Canpotex, but when that contract will be settled is currently anyone's guess. The country is completely dependent on foreign supplies of potash, but does make use of alternative products, principally urea; it last signed a contract in August 2011, according to The Globe and Mail.

Suppliers such as Agrium and Uralkali have both suggested that contracts are likely to be settled in early 2013, but a source at Indian Potash, an unlisted company that negotiates on behalf of all Indian buyers, told The Globe and Mail, “so far, we have not started talking to global potash suppliers,” and noted that contracts are not likely to be settled until at least June.