FocusCanpotex deal highlights NA potash producers' focus on India

07 February 2013 21:19  [Source: ICIS news]

Canpotex deal highlights NA potash producersBy Mark Milam

HOUSTON (ICIS)--As India looks to grow more food for its burgeoning population, North American potash companies are growing more interested in making a name for themselves in that market.

Canada's Canpotex announced on Thursday that it has signed an agreement to supply India with approximately 1.1m tonnes of potash at a price of $427/tonne CFR (cost & freight).

While not indentifying the buyers, the offshore marketing company for Saskatchewan potash producers said that the product is being bought by both governmental and private customers and will be shipped through January 2014. The announcement was a break in the stalemate between the North American producers and India that had caused profits to fall and led to an overabundance of stockpiles of the crop nutrient.

Canpotex officials said the deal highlights the importance of the Indian market to them, a sentiment shared by other top producers such as Minnesota-based Agrium and Alberta-based Mosiac and Saskatchewan-based PotashCorp.

“We are very pleased to sign supply contracts with our long-term Indian customers, and to continue our history of being a leading supplier to this important market,” said Steven Dechka, Canpotex president and CEO. “We look forward to meeting India’s future growing potash needs in collaboration with our Indian partners.”

Dechka said that beyond the supplying of potash, the company is committed to assist its customer base in India by adding new development programmes designed to provide farmers with the resources to better utilise the fertilizer and thereby improving overall yields.

The agreement is the second major potash deal to be announced this week, as on Wednesday trading company Belarusian Potash Company (BPC) agreed to ship 1m tonnes of potash to fertilizer importer Indian Potash from February 2013 through January 2014. The delivery price on that contract was set at $427/tonne CFR. In January, BPC also signed agreements with importers in China at a price of $400/tonne CFR.

While the India market is not the major source of revenue for the marketing group, the pricing agreement is important, as prices in India and China typically set the basis for the global market and influence future spot buying.

In a conference call with media and analysts last week, PotashCorp officials said that, thanks to government subsidies, customers in India have actually being paying less for potash over the last several years, but imports have still decreased.

“India has a system of subsidies that distorts its domestic fertilizer market, putting a higher priority on nitrogen over the scientifically proven need for balanced crop nutrition," said William J. Doyle, PotashCorp CEO. "Some have suggested that the current contracts impasse is due to high global prices for potash, which have caused demand destruction, but the numbers simply don’t bear that out. Since 2008, the price India pays for potash has declined 22%, while the average price it pays for urea is down 16%.”

Doyle said PotashCorp, which has projected its 2013 market share in India at 5m tonnes, was encouraged by signs that the private sector was starting to realize the need for potash as an important part of increasing food production and a step toward reversing past practices of poor fertility.

“They know the nutritional requirements of over 200m Indians are simply not being met," he said. "We believe this mounting pressure, coupled with the engagement of other key markets, including China, will provide an incentive for the Indian government to address its fertilizer policy and stimulate farmer engagement in 2013.”

By: Mark Milam
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