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Potash Split Prompts India’s Biggest Buyer to Seek Price Cut

August 2, 2013
Fertilizer
  

India’s biggest potash importer will seek to renegotiate prices for the crop nutrient after suppliers suspended a venture controlling almost half of global exports.

"We will ask for a suitable reduction in the price" before the current contract expires, said P.S. Gahlaut, managing director of Indian Potash Ltd. The company had contracted to buy 1 million metric tons from a marketing venture between Russia’s OAO Uralkali and Belarus at an average $400 to $410 a ton until March 31. Half of that has already been supplied, Gahlaut said.

The $20 billion global market for potash is set to become freely traded for the first time in eight years after Uralkali said this week it decided to end production restrictions that underpinned global prices. It will no longer sell potash through Belarusian Potash Co., the Minsk-based marketing company it established in 2005 with rival miner Belaruskali. The venture controlled about 40 percent of global potash exports.

"There is oversupply of potash and it’s putting pressure on prices," said Gilad Alper, a senior analyst at Tel Aviv- based Excellence Nessuah Brokerage Ltd. "Uralkali reached a conclusion that the market is not going to rebalance any time soon and it’s better just to let prices drop so that they can start selling volume."

 

Below $300

 

Uralkali declined to comment. The company said July 30 it had started talks with clients worldwide to arrange new contracts without Belarusian Potash. Global potash prices may fall below $300 a ton after the change in trading policy, it said. Filipp Gritskov, a Belarusian Potash spokesman, declined to comment on any renegotiation of prices with Indian Potash.

"If prices fall to this level the contracts will become untenable," Gahlaut said yesterday by telephone. "As long as there is no cartel it suits India. We will renegotiate with all our suppliers to get the best price."

Indian Potash will hold talks on new contracts with Uralkali and renegotiate the existing agreement with Belarusian Potash, he said.

"The country may get an additional discount as competition between the producers has started and the price may fall," Kirill Chuyko, BCS Financial Group’s head of equity research, said by phone from Moscow. "This is good for India, but bad news for potash producers."

 

Potash Contracts

 

Buyers in India, which imports all its potash needs, have contracted to purchase 3.5 million tons in the year through March 31, according to Gahlaut. New Delhi-based Indian Potash has arranged to buy more than 60 percent of the total.

Potash is a fertilizer ingredient that strengthens plant roots and improves their resistance to drought. It’s used in India to increase yields of fruits, vegetables, sugar cane, tea and coffee.

"Potash consumption in the country will definitely go up by at least 10 percent if prices decline," said Sopan Kanchan, president of the Confederation of Indian Horticulture, a group of about 200,000 farmers. "It will reduce costs for farmers. Potash is a very important element in agriculture."

Uralkali’s break with Belarusian Potash followed the Belarus government’s decision to cancel the group’s exclusive right to export the nation’s potash. It also came after record crop prices last year failed to translate into higher fertilizer charges, Uralkali Chief Executive Officer Vladislav Baumgertner said this week.

"We are expecting potash consumption to rise in markets where farmers are price-sensitive, above all in India, Southeast Asia and China," Baumgertner said by e-mail on July 30.

 

Record Imports

 

India imported a record 6.5 million tons of potash in fiscal 2008 and 2010, with Belarusian Potash supplying almost half of that amount, according to Uralkali. Shipments plunged after India moved to a fixed fertilizer subsidy system, which had the effect of lowering the payments, from April 2010. North America, China and India are expected to drive a rebound in world potash demand, Uralkali said in a June 17 statement.

The other group dominating the market is Canpotex Ltd., which since 1972 has exported potash for Canada’s Potash Corp. of Saskatchewan Inc. and Agrium Inc., and Plymouth, Minnesota- based Mosaic Co.

The end of the Russia-Belarus marketing venture "is going to reduce the effectiveness of Canpotex," Excellence Nessuah’s Alper said. "They are going to have a much harder time in controlling prices and regulating volumes."

 

--With assistance from Aliaksandr Kudrytski in Minsk, Belarus. Editors: Abhay Singh, Indranil Ghosh

 

To contact the reporter on this story: Pratik Parija in New Delhi at pparija@bloomberg.net; Prabhudatta Mishra in New Delhi at pmishra8@bloomberg.net; Yuliya Fedorinova in Moscow at yfedorinova@bloomberg.net

 

To contact the editors responsible for this story: James Poole at jpoole4@bloomberg.net; John Viljoen at jviljoen@bloomberg.net

 

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