Russian Potash Producer Sows Discord In Market
13 July 2009 Europe’s largest maker of potash for fertilizers, K+S AG — along with Israel Chemicals Ltd. and North American producers Potash Corp. in Canada and US-based Mosaic Co. — fell in local trading after a Russian competitor’s contract in India prompted speculation that prices will come under pressure, reports Bloomberg.com. K+S lost as much as 5.4% and the Israeli company dropped 3%. The price speculation comes after RBC Capital Markets reported on July 10 that Russian producer OAO Silvinit may have sold the crop nutrient for less than analysts expected. Seven companies — K+S, Potash Corp., Mosaic, OAO Uralkali, Silvinit, Belaruskali and Israel Chemicals — control 85% of worldwide potash production.
Russian producer OAO Silvinit has since confirmed that it agreed to supply India with 850,000 metric tons of potash by March for US $460 a ton, lower than a target range of $500 to $525 by UBS, one of the world’s leading financial firms. “This is a large volume contract between a major seller and large buyer,” UBS’s Joe Dewhurst said in a research note. “This would likely establish the market floor price and set the range for Chinese buyers.”
Producers in the $28 billion global potash market have tried to buoy prices by slashing output by as much as 50% from peak levels as cash-strapped farmers balked at prices that exceeded $1,000 a ton in some regions last fall.
“With China out of the potash market due to weak demand from farmers and high stocks, India is the pricing benchmark this year,” analyst Elena Sakhnova of investment group VTB Capital said. “We would treat this more as financial problems at one of the global players rather than a crack in discipline,” she said. The price of potash for immediate delivery will “correct sharply” to $530-560 a ton, from $735-750 a ton currently, Sakhnova said. The price reduction in India may be “a good stimulus for China to buy fresh volumes,” she said.
Global prices for potash, used to shield crops from dryness and disease, more than quadrupled in 2007 and 2008 on expanding Chinese, Indian and Brazilian demand and a boom in biofuels. Global supplies trailed demand by 1.5 million to 2 million tons in 2008. K+S cut prices for European markets by 20% last month, spurring predictions that producers may now be prepared to sell the soil nutrient for less as demand continues to slump.
International Potash Co., Silvinit’s marketer, and five other companies were bidding in an auction to sell potash to India. Banks including Citigroup Inc. and Troika Dialog said the negotiations may test producer discipline before key contracts with the South Asian nation and China are signed. Andrei Epifanov, deputy chief executive officer of Silvinit’s trading unit, said the Indian deal — a 26% price cut — probably signaled the bottom of the potash market and future contracts will likely be signed at higher prices.
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