09 January 2012 17:15 [Source: ICIS news]
LONDON (ICIS)--Indian importers will delay signing new contracts for purchasing potash until July or August because of “severe demand destruction” caused by the surge in prices, said US Awasthi, managing director of the country’s biggest fertilizer cooperative, the Indian Farmers Fertiliser Co-operative (IFFCO).
New contracts for potash were initially expected to be finalised by April–May.
“There is practically no demand. Just write off India,” Awasthi said. He sees demand for potash in the coming fiscal year falling by around 40%.
India’s potash sales declined 58% to 975,200 tonnes in the seven months ended 31 October 2011, from 2.3m tonnes a year earlier, according to data from the Fertiliser Association of India. But the drop in demand over the last three months has been worse.
“Demand destruction from October onwards has been around 70%,” Awasthi said.
As a result, India has enough inventory to last the first half of this year. Domestic potash stockpiles are around 2m tonnes – up by over 70% from a year ago – according to importers.
“We do not have any space at ports or silos. Things are choked up,” Awasthi said.
India entered into contracts with global suppliers to import 5.5m tonnes of potash this fiscal year at a price of $470/tonne (€371.3/tonne) CFR (cost and freight) in the second and third quarters and at $530/tonne CFR in the last quarter.
Shipments for the January–March quarter have been delayed on requests from Indian buyers, who want to lower import costs because of the rupee’s devaluation against the dollar. These contracted volumes will be delayed until April–June.
The price discrepancy between urea and muriate of potash (MOP) has led to farmers switching to urea. The price of MOP has doubled to Indian rupees (Rs) 11,300/tonne ($214.4/tonne or €168.9/tonne) over the last year. In contrast, urea costs just 10% more than a year ago, at Rs5,310/tonne, as it is still controlled by the government.
The drop in demand is not good news for potash producers, as India is one the world’s biggest importers. There are expectations that potash prices could cool off in the coming months as a result.
Potash producers are already responding to the tighter demand environment by cutting down production. On Friday, the world’s biggest producer, Canada-headquartered PotashCorp, announced that it would stop production at its mine at Allan, Saskatchewan, for four weeks – its third plant shutdown this winter.
($1 = €0.79, $1 = Rs52.72, €1 = Rs66.88)
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