Potash Corp. Expects China to Sign Contracts for Fertilizer

April 29, 2016 07:53 AM
Potash Corp. Expects China to Sign Contracts for Fertilizer

Potash Corp. of Saskatchewan Inc. sees the chances that China will fail to sign a contract for supplies of its namesake fertilizer as “slim to none,” though when that settlement will come isn’t yet clear, said Chief Executive Officer Jochen Tilk.

“Our expectation is there will be a contract, and China will try to make that an annual contract,” Tilk said in a telephone interview Thursday. “These negotiations are generally led by some of our competitors. When they will be settled and who will be the party to settle, we really don’t know.”

China is the world’s largest consumer of potash, and the negotiations between producers and buyers typically set a benchmark price for the fertilizer used by farmers to aid plants. Potash Corp., the world’s second-largest producer of its namesake crop nutrient, on Thursday cut its full-year profit forecast partly as the Asian country delayed signing key supply contracts. The delay also led to cautious buying patterns in other regions, spurring weaker demand and prices, the company said.

“The big driver there is the draw down in inventory,” Tilk said. “It has been higher than in previous years, and so China was able to prolong the time until negotiations kick in.”

In 2015, Canpotex signed supply contracts with China in mid-March for at least 1.8 million tons. The company is a marketing venture that represents Potash Corp., Mosaic Co. and Agrium Inc.

Prices Drop

Spot prices for potash have tumbled in the past year amid ample supplies and a slump in agricultural commodities. The crop-nutrient is used by farmers to strengthen plant roots and boost drought resistance. The company is reducing production of potash and lowered the forecast for annual sales volume to 8.3 million from 8.8 million metric tons.

Chinese supply contracts may price the fertilizer at $250 a metric ton this year, a drop of $65 from last year, according to a Green Markets estimate made this month during Bloomberg Intelligence’s spring agricultural webinar.

As the company awaits contract negotiations in China, signs of rebounding demand in India are adding to expectations of an improving outlook for the fertilizer.

India’s purchases of potash may jump as much as 29 percent in the year that began April 1, as normal monsoon rain bolsters demand for the soil nutrient, P.S. Gahlaut, managing director of Indian Potash Ltd., said in an interview Thursday. The company will begin talks with suppliers in June, as China is expected to finalize import contracts by the end of May, he said.

“There’s some optimism on our part that India will kick in with some high demand,” Tilk said.

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