Canpotex said Feb. 8 that it has reached an agreement with Sinofert on a spot sale of approximately 350,000 mt of Canadian potash at competitive prices. The product is to be shipped to China before the end of March 2010. This allows a very short window of time to ship such a large amount potash out of Vancouver.
As a result of this sale, Canpotex says it is now fully committed on sales through the first quarter of 2010, and it will announce plans with respect to second-quarter pricing early in March, after thoroughly reviewing changing and much-improved overseas potash market conditions.
The news missing from the Canpotex announcement was the price it agreed to with Sinofert. Traditionally, Belarusian Potash Co. (BPC) has negotiated pricing with China and Canpotex has followed. In December, BPC negotiated a price of $350/mt CFR with Chinese buyers (GM Jan, 4, p. 1). Canpotex later said it would not sign a year-long contract at that number, and that it would seek a spot contract with Chinese buyers instead.
Canpotex and its three principals – PotashCorp, The Mosaic Co., and Agrium Inc. – were mum last week as to the actual price, since Canpotex and Sinofert have agreed to keep it quiet. However, this left it open for the industry to speculate. One question was whether Canpotex was willing to commit to $350/mt CFR, but only for a spot contract that would end in March. This alternative would get Sinofert the $350/mt price, and give Canpotex the room to maneuver for the rest of the year. At the same time, however, Canpotex has been touting higher prices to other – albeit smaller – buyers in the region. These buyers traditionally pay higher prices than China.
Although Agrium Inc. was available for questions from analysts last week in its earnings conference call, it remained silent on responding to the China question. However, PotashCorp and Mosaic representatives appeared at the Goldman Sachs Agricultural Biotech Forum Feb. 10, and while not coming out and revealing the price, they were candid about the negotiations.
PotashCorp Executive Vice President and Chief Financial Officer Wayne Brownlee stressed that Canpotex was not willing to enter into a long-term contract at the $350/mt CFR price. He noted the stalemate between the two sides, and said the question was whether there was a way to save face for both sides or “should you just walk away completely and say ‘you know what, tough luck, Charlie,’ so to speak. We have a long-term relationship with the customer base there.
“So basically, what you’ve gotten there is a compromised arrangement, where we agreed to supply tons for two months – 350,000 mt. Part of the agreement was not to talk about the price so much, the price is nothing to jump up and down about.”
Brownlee said it was more about getting a compromise that was helpful to them and a little helpful to Canpotex. “It tightens up the market a little bit more and it’s part of turning around the market momentum into a seller’s market rather than a buyer’s market, and it was part of the contracts that we had signed in Taiwan and Japan and Australia. Part of the aspect of the business that we saw in the United States, it’s part of the $30 increase going through, which we think has taken effect in the United States, and we are already seeing that the $30 ton Brazil price increase that was announced by our competitor is also seeming to just take effect. So, this whole process has been trying to change momentum from a buyer sentiment to a seller sentiment.”
Brownlee said it was a compromise that helped turn the ship around.
“I can tell you that both China and Canpotex were very pleased with this contract,” said Mosaic Executive Vice President and Chief Financial Officer Lawrence Stranghoener. “It solved an immediate need for product in China. And it’s served producers’ desire to ship product immediately, standard-grade product that was in stock.”
Stranghoener said whether this represents a new way of business in China remains to be seen, “but at least for now it is better serving our purposes as a producer and evidently our customers’ needs as well.”
As for a $30 price increase for potash due in March in the U.S., Stranghoener said it was not fair to say it has already taken effect in light of good demand. “I don’t think it’s fair to say it’s already taken effect. I think the tone is positive; the trend is positive. I think right now all eyes are on the grain markets and the upcoming spring planting season. February is typically a bit of a slow month in this industry, and that’s proving to be the case again this year, especially with grain prices weakening a bit.” He said the company still expects very strong demand and recovery, even with the relatively high producer inventory levels. Stranghoener added that distributor pipelines are quite low, suggesting a very attractive supply-demand picture shaping up for the next several months.