Potash Partners Dealing in Asia

Recently, reports claimed that a Russian potash producer has settled with India on a supply contract price that is 25% lower than its last year’s contract. This is expected to significantly hurt the pricing power of the potash cartel, as the rest of the world is likely to follow suit.

The potash cartel comprises Canpotex – a partnership between Potash Corp. of Saskatchewan (POT), Agrium Inc. (AGU) and Mosaic Co. (MOS) – besides three Russian and one German producer. Together, they account for 75% of the global potash capacity.

The price of potash – an essential crop nutrient – remained obstinately higher on top of falling demand. The fertilizer cartel had deliberately curtailed production to keep pricing unaffected. About 40% of the global potash production capacity has been idled since the second half of 2008.

Canpotex has succeeded in maintaining its price level recently by signing contracts with customers in Japan, Korea, and Taiwan covering shipments for the second quarter of 2009. The new contract is priced at about $700 per ton.

However, fears had spread that the cartel may no longer be able to sustain its price control given the current market conditions. Farmers were keen to know how the cartel resolves its pricing negotiations with the largest overseas potash buyers such as China and India.

The Russian producer settled with India at a price of $460 a ton, much lower than $625 a ton last year. Speculation is rife that the contract price may fall further, cutting a deep wound in the bargaining strength of potash superpower.
 
We continue to recommend POT and AGU as Hold.

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