* North American supplies piling up well above average
* Lack of contracts with China and India hurt sales
* Shares rise on large volume deal
By Rod Nickel
WINNIPEG, Manitoba, Dec 31 Three North American
potash producers have struck a six-month agreement to supply the
crop nutrient to a subsidiary of China's Sinofert Holdings Ltd
at a steep discount of US$70 per tonne from the last
Shares of the potash companies - Potash Corp of Saskatchewan
, Mosaic Co and Agrium Inc - rose in
morning trading, even though the discount was larger than some
analysts were expecting. The sales will help reduce a massive
potash stockpile from mines in the Western Canadian province of
Canpotex Ltd, the offshore sales agency for the three
companies, said on Monday that it would supply Sinofert
Fertilizer Macao Commercial Offshore Ltd with 1 million tonnes
of potash for the first half of 2013.
In its brief statement, Canpotex released the size of the
discount but not the price itself. However, the previous
contract price, established in March, was believed to be $470
per tonne. That would mean the new contract represents a 15
percent discount to supply Sinofert at $400 per tonne.
"It looks to be a tradeoff between price and volume," said
Raymond James analyst Steve Hansen. "Canpotex prefers price
first. I was surprised by the magnitude of the cut, but it's a
large volume commitment."
The price, while much lower than an expected $427 per tonne,
should help spur a recovery in demand, said Scotiabank analyst
New supply deals with China and India, the world's two
biggest potash consumers, were expected by late summer. However,
ample supplies in China and a decreased Indian government
subsidy of farmers' purchases of the fertilizer delayed the
North American potash supplies in November were 58 percent
above the five-year average. Potash Corp, the world's biggest
potash producer by capacity, has temporarily shut down four of
its Canadian mines to support prices.
A deal with China will provide a much-needed buyer for the
nutrient, which is used to boost crop yields, but Chinese and
Indian buyers typically pay the lowest prices in the global
market. The contracts are closely watched, as international spot
market prices are usually pegged at a premium to the contracts.
Sinofert's lower price still leaves the potash producers
with healthy profit margins, said Ernie Lalonde, senior vice
president of mining for DBRS Limited, which rates the debt of
companies like Potash Corp.
Potash Corp shares were up 1.1 percent in New York and 0.9
percent in Toronto, while Mosaic climbed 1.6 percent and Agrium
added 0.8 percent.
A deal between Canpotex and Indian buyers is expected
sometime in the first quarter of 2013.
"The (China) deal should act as a catalyst to get India
moving to a deal and perhaps more importantly unfreeze the other
international markets that have been sitting on the sidelines
waiting for an agreement," said Paradigm Capital analyst Spencer
The deal should also hasten talks between China and
Canpotex's chief rival, Belarusian Potash Co, which sells the
crop nutrient on behalf of Uralkali OAO and
Belaruskali, Hansen said. Uralkali has said it expects
negotiations on a contract with China to begin in February.