India Re-negotiates K Contract: Could This be the Floor?

September 30, 2013 09:25 AM

India meets the entirety of its potash demand via imports. Today, Bloomberg reports that Indian Potash Limited has re-negotiated its annual potash contract for 12% less than the previous tender which was pegged at $427/tonne. It is not known how much potash India had purchased under the original 1 million tonne deal, but the price for new tenders has gone down.

The lower price is the result of the breakup of Belarus Potash Company (BPC). Fears of oversupply have sent the sendout price for potash tumbling as investors watched stock prices fall. But China sent a strong signal that they believe the downside is nearly exhausted for potash by acquiring a 12.5% stake in BPC walkout, Uralkali Indian suppliers may be reading that as a signal that the uncertainty that drove potash prices to long time lows is nearly over.Picture1

Between BPC and Canada's Canpotex, the two provided roughly 2/3s of the world's potash. These exporters had maintained consistent pricing since 2005 when BPC was founded. But this year marks a divergence in global sendout prices as PotashCorp CEO Bill Doyle pointed out that no one company sets the global potash price, stating Canadian K producers have no intention of chasing the FSU fire sale price.

Be that as it may, potash prices in the United States -- potash supplied by PotashCorp via Canpotex -- has fallen to $108.68 below year-ago in retail pricing. The price slide has had suppliers and growers on the sidelines, waiting out the price plunge. But as China has taken a seat at the table, and India re-negotiates contracts, the two largest potash consuming nations in the world seem to think the bloodbath is over.

China would not hook into a 12.5% stake in a company if it felt it could get a better deal next month. Nor would India re-negotiate contracts as the rupee continues to flail if they did not think this was the best deal they could get. If there is more downside room for K in North America, the proof will be in the pudding soon. I expect to see more states tick higher in the coming week -- three Monitor states have turned around already, and we have a feeling the news of indefinite declines will continue to taper.

Our expectation is for nutrient to level off for a short reprieve for harvest. From there, imagine a world in which BPC patches things up and restarts the FSU joint Venture. Without the two at each other's throats, producing hell-bent-for-leather no matter what the cost, potash pricing may just decide to correct from all the drama and try to recapture some of the $100+ it gave away in the last two months.

That would mean potash pricing pegs much higher than today's for spring applications. We have advised filling 20% of spring potash needs today as a hedge against uncertainty. There are those who may wish they had filled more than that, and you may be one of them. With India and China giving the nod to today's price, look for rumors to cool and upward price potential to heat up.

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