Have Indian fertiliser companies been able to break a stranglehold that major producers have on the global potash market? Indian papers are full of reports on how Indian companies have succeeded in doing this by securing a contract price of $460/tonne for supplies in 2009-10, about $165/tonne lower than the previous contract.
The drop comes after Indian and Chinese buyers had reluctantly accepted a steep hike of $355/tonne and $400/tonne respectively in 2008. These hikes were based on an over-stretched supply position, strong demand and firm spot prices.
But the situation has reversed this year as a fall in crop prices since 2008 has seen demand slump leaving potash producers with heavy stocks. Global capacity utilisation is estimated at 40-50%.
Indian companies have successfully taken advantage of this position. But producers, who have seen erosion in profits, are hoping for a quick reversal in fortunes. Potash Corp has warned that a looming global food crisis will result in increased demand for potash and other fertilisers. US-based Mosaic has predicted that low inventories will soon bring Chinese buyers to the import market.
China imported 9.5m tonnes in 2007 and 5.5m tonnes in 2008. The Chinese government is reported to be limiting 2009 imports to about 7m tonnes. India is expected to import about 4.5m tonnes of potash in the year ending 31 March 2010 and it has already booked 3.2m tonnes, reports ICIS news.
Producers might well be trying to talk themselves out of a difficult market situation. But if their predictions come true Indian companies could find that the stranglehold has not been broken.