The True Future of Global Potash Pricing

September 3, 2013 08:53 AM

The value of the Indian rupee has taken a beating in the past months reaching a record low last week, and has fallen off nearly 20% since February when Indian importers tendered potash contracts. But as import officials in India look to fill potash demand, the declining currency has exporters looking to find a price point that will serve both the struggling economy of India and allow profitable margins on sendouts.indian rupee

Tenders completed in February were for 4 million tonnes of potash at $427.00/tonne, slightly higher than the Canpotex price leveraged by Chinese buyers last fall. The fertilizer subsidy in India now has it that suppliers will pay half of the cost of shipments, leaving growers to cover the rest. But as the gap widens between dollars and rupees, Indian buyers question if growers will be able to afford product at any price.

Historically, 70% of India's potash tenders have come from Canada's Canpotex and from the Belorussian Potash Company (BPC). Now that BPC has disintegrated, with one nation holding the other's CEO in custody, Canpotex may be the only player on the ball enough to set this price.

Potash fell strongly last week according to this morning's fresh Inputs Monitor Data and while oversupply from the Former Soviet Union (FSU) could eventually impact global pricing, the reality of that has yet to be seen. This is a boots on the ground opportunity for Canpotex to take the lead. As FSU old-guard tactics distract potash production in Belarus and Russia, global potash standby Canpotex may be able to liquidate part of its remaining inventory overhang in Saskatchewan at a price point Indian buyers can afford.

canpotexvesselMeanwhile, as Belarus and Russia play politics, the focus that so squarely shone on FSU oversupply potential seems to be little more than interesting news when it comes to the actual impact on the market. Yes, the BPC split has potash producers worldwide recovering from a downside dive when the news broke that Uralkali had seceded from the BPC union, but an oversupplied market can take months, even years to impact global pricing -- especially when Indian and Chinese buyers are largely on the sidelines, with inventory to spare.

The reality of the situation is that actual product pricing to end users is falling -- not as far as they had predicted in the FSU, but there is a lot of that story still unwritten. As with last year, tenders to China and India out of Canpotex will bear the burden of supply and indicate the bottom dollar for potash exports. This actual figure will trickle down to growers in the U.S., not the figure projected by an FSU in turmoil, and in this way, indicate the true future of potash pricing.

Photo credit: calwest / Foter / CC BY-NC-ND

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