OAO Uralkali, the world’s largest potash producer, agreed to supply the soil nutrient to China for 24 percent less than it did before pulling out of a joint supply deal with Belarus.
Uralkali will sell 700,000 metric tons of potash to Chinese customers at $305 ton under a contract for the first half of 2014, it said in a statement yesterday. That compares with the $400 Berezniki, Russia-based Uralkali charged when it marketed potash with Belarus until July.
"It’s a definitive price point that people can look at and use as some sort of floor price," Peter Prattas, a Toronto- based analyst at Cantor Fitzgerald LP, said in a telephone interview. "Buyers have been waiting for something like this as a catalyst so they can start buying again."
Prices have fallen since Uralkali withdrew from a trading venture with Belaruskali that controlled 40 percent of global exports. Uralkali accused its Belarusian partner of selling potash outside their marketing agreement, and moved to increase its own production. Chinese spot prices have dropped to $303 to $305 a ton, Uralkali marketing chief Oleg Petrov said Dec. 19.
"In this deal, the Chinese buyers took 70 percent of what was negotiated last year together with Belarus, and Uralkali can sell additional volumes by rail on top of that," Konstantin Yuminov, a Raiffeisenbank analyst in Moscow, said by phone.
The contract allows the Chinese buyers a $20 rebate toward freight costs, said an official at Sinofert Holdings Ltd., a unit of China’s largest chemicals trader, who can’t be identified under company policy.
"Rebates are a normal thing for contracts with China, and are typically 5-10 percent of the agreed price," said Elena Sakhnova, an analyst at VTB Capital in Moscow. "A $20 rebate is just 6 percent, which is reasonable."
Uralkali dropped 0.3 percent to 185.31 rubles by 4:40 p.m. in Moscow trading
The Russian company competes for business in China with Canpotex Ltd., which trades potash for North American producers Potash Corp. of Saskatchewan Inc., Mosaic Co. and Agrium Inc.
Leah Laxdal, Canpotex’s manager of corporate services, didn’t immediately return a call seeking comment. Bill Johnson, a spokesman for Potash Corp. in Saskatoon, Saskatchewan, declined to comment on the Uralkali agreement.
Potash Corp. rose 0.1 percent to C$37.50 at the close yesterday in Toronto. Shares of the Saskatoon, Saskatchewan- based company have increased 7.1 percent this year.
Belarus also may win a contract to supply China, with the price likely to be the same for all sellers, Raiffeisenbank’s Yuminov said.
Companies owned by billionaire Mikhail Prokhorov, as well as Russia’s OAO Uralchem, bought 47 percent of Uralkali from billionaire Suleiman Kerimov and his partners after Belarus President Aleksandr Lukashenko demanded new ownership as a condition for talks about restoring joint marketing.
"We expect a prompt return to cooperation," said VTB Capital’s Sakhnova.
After China’s previous contract with the Uralkali- Belaruskali venture expired in the first half of last year, Uralkali took up an option to sell 500,000 tons to China from August through December -- a deal originally granted to its joint venture. The price of the option wasn’t disclosed.
Potash is a form of potassium used by farmers to strengthen plant roots and boost resistance to drought. Global sales, which are dominated by producers in the former Soviet Union and North America, are valued at about $20 billion a year.