Changing potash landscape a boon for China, India – by Brenda Bouw (Globe and Mail – August 1, 2013)

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China and India are poised to gain greater control over global potash pricing now that the oligopoly that controlled the majority of trade in the crop fertilizer, a key Canadian export, has been dismantled.

This week’s breakup of Belarus Potash Co. (BPC), a joint venture between Russia’s Uralkali and Belaruss’s Belaruskali, puts the world’s two most populous countries in a much stronger position after years of resistance to prices set by both BPC and Canada’s Canpotex Ltd.

Until now, the two groups controlled more than two-thirds of global potash sales. Saskatoon-based Canpotex is owned by Potash Corp. of Saskatchewan, Agrium Inc. and Mosaic Co.

The new landscape is expected to lower potash prices, which would increase demand and crop yields, particularly in high-demand countries such as China, India and Brazil. That in turn could help contribute to lower global food prices, which economists say are falling on expanded crop planting.

“China and India stand to benefit quite a bit [from BPC’s breakup],” said Kona Haque, an analyst with Macquarie Capital (Europe) Ltd.

“They’ve been always stuck in extremely high contact prices with very little room for negotiation … With more supply potential available and more room for prices to collapse, I think Chinese and Indian demand will start emerging in a much bigger way.”

Potash prices are currently about $400 (U.S.) per tonne, and could drop below $300 by as early as the end of the year as a result of the new landscape, according to analysts.

What is more, the spot market will also begin to drive prices, instead of potash contracts, which has traditionally been the case, Ms. Haque said. That will also drive countries such as China, India and Brazil to buy more, she said.

Canada accounts for about one-third of global potash production, or about 16 million tonnes to 18 million tonnes annually. The value of potash shipments was $8-billion, which ranked the product first among all minerals produced in Canada in 2011, according to Natural Resources Canada.

Buyers from China and India “will try to move away from these negotiated contracts and they’ll obviously be more engaged in the spot markets,” Ms. Haque said.

For the rest of this article, click here: http://www.theglobeandmail.com/report-on-business/changing-potash-landscape-a-boon-for-china-india/article13540346/

 

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