(This story appears as part of a special package
highlighting the global potash industry.)
* China potash inventories high, no rush for imports
* Inventory seen as comfortable through spring 2010
* Chinese potash contract could get pushed into 2010
(Figures in U.S. dollars unless noted)
By Donny Kwok and Moxy Ying
HONG KONG, Sept 24 China, the world's largest
potash buyer, still has high inventories and is in no rush to
resume imports, leaving the market searching for a price floor
on the key fertilizer ingredient.
China imports 5 million to 8 million tonnes of potash a
year, giving it a key role in the market for the commodity, one
of the essential minerals needed for plant growth, alongside
nitrogen and phosphate.
"Domestic consumption is still digesting the inventory. I
don't expect to see a shortage of potash (in China) in the
second half of the year," said Lawrence Chor, an analyst at
China's huge purchasing power gives it the ability to
negotiate aggressively with suppliers, who have already been
forced to cut prices due to a global slump in demand.
Industry officials do not expect China to return to the
market until next year, after drawing down its own surplus
supplies, and it will use a new Indian import price of $460 a
tonne as a benchmark for negotiations.
That was the price set in July when Indian importers signed
contracts to import the bulk of this year's potash
requirements. It is below both last year's contract price of
more than $600 and the spot market price of $700 at the time --
and well off last autumn's record of $1,000 a tonne.
2010 CONTRACT LIKELY
But if that contract is not signed soon -- and the chances
are that it won't be -- there will be no price guide for other
would-be buyers, and that would be bad news for producers.
"Those contracts might not be concluded this year. The
potash that we have at the moment is enough to maintain a
normal operations till first half next year," said Xiaoman Ni
from BOCI Research, who puts the local demand for potash at
less than 6 million tonnes this year.
"The potash price is at the bottom now and it may stay
there even during the first half of next year," she added.
A contract delay until 2010 would spell additional
uncertainty for both markets and buyers, who expect the Chinese
contract to set a floor on potash pricing.
Many buyers were stung when potash prices collapsed this
year and were forced to book major inventory writedowns. They
are nervous about restocking at current prices, in case a China
contract comes in at an even lower price.
Tiafook's Chor said neither Sinofert nor China itself would
need to buy potash until inventories fall. He estimated China's
potash consumption at 8 million to 9 million tonnes next year
and said demand could grow by 7 percent to 8 percent a year if
prices hold steady.
Sinofert Holdings (0297.HK), which imports more than half
China's potash, is more optimistic and expects China to use
about 10 million tonnes in 2010, according to a recent research
note from Bank of America Merrill Lynch.
The note said Sinofert had about 2.6 million tonnes on hand
at the end of June and would likely draw down inventories to
normalized levels before buying more.
"We maintain our view that inventories in China remain
comfortable through spring 2010, and any contract settlement
would be a function of price more than demand," said Goldman
Sachs analyst Jessie Pinglun Lai, who has a "sell" rating on
Hong Kong-listed Sinofert.
"We expect potash buyers to push for further price
reductions, and see more downside risk to current prices," Lai
said in a note to clients.
Still, Sinofert expects demand to recover.
"We believe that, in the next couple of years, China's
fertilizer consumption will overcome the downtrend as seen in
the past two years, and growth in market demand is
foreseeable," Chairman Liu De Shu said in a statement.
(Editing by Janet Guttsman)