Belarusian Potash Co. (BPC), the Uralkali and Belaruskali joint venture, confirmed on Dec. 23 that it has concluded a deal to sell potash to China at $350/mt CFR from January-December 2010. The deal is for 1.2 million mt, including an optional 200,000 mt. The potash will go to Chinese importers Sinochem and CNAMPGC.
Oleg Petrov, BPC head of sales, told analysts that the company had only had a brief window in which to conclude a deal, as January-March is a huge consumption period for potash in China. He said it was either now or no contract. He said he was 100 percent sure that it was the correct move, and a good starting point for the recovery of demand.
Petrov noted three major reasons for the deal in December. He said there would have been a big psychological impact, as the market has been waiting for the floor for 15 months ?Çô since September 2008, when the industry went into a big crisis. He said there was a big pricing gap between potash and the other major nutrients, phosphate and nitrogen. He also noted price erosion for product to Brazil, to US$400/mt CFR.
Petrov said the new contract will stimulate Chinese demand, stop price erosion and price protection, and provide positive price guidance and a floor. Petrov believes global potash sales can rebound from an estimated 25 million mt in 2009 to 45 million mt in 2010.
Petrov expects China to consume some 8 million mt of potash in 2010, with about 5 million mt of that coming from domestic production. Once you add the BPC tons, that leaves only 2 million mt to be divided up among other international exporters, including Canpotex. The Canpotex stakeholders – PotashCorp, The Mosaic Co., and Agrium Inc. – so far have had no comment as to whether Canpotex plans to follow BPC’s lead on export prices to China. However, PotashCorp did announce North American price decreases after the BPC news (see Market Report, Potash).
Petrov said potash has been in a crisis situation consumption-wise, and that China was badly needed. He expects that 2010 will be a recovery year, with other buyers also returning to more normal consumption levels. He noted that Brazil took only 300-400,000 mt of potash from BPC in 2009, down from 2008’s 1.3-1.4 million mt. He expects 2010 to come in at 1 million mt.
Petrov said there will be no rebates to Chinese buyers off the $350/mt CFR. As for the $460/mt CFR price to India, Petrov said those numbers would not be revised, though this could occur with optional volumes.
A Uralkali spokesperson said that the lower prices to China would have no impact on its brownfield and greenfield expansions.