* Producers scramble to sell after BPC breakup
* Prices in Brazil, a key spot market, fall to $370 a tonne
* Belaruskali offers India deep discount on new contracts
By Ron Bousso
LONDON, Sept 5 Potash prices are poised to drop
some 20 percent after the surprise breakup of the world's
largest producer cartel sent buyers and sellers scrambling to
establish new valuations, traders said.
Global trade in the material - one of three nutrients vital
for agriculture - remains largely on ice after Russia's Uralkali
in July quit the partnership Belarusian
Potash Co (BPC), which together with a rival North American
cartel controlled some 70 percent of the market.
Belarus' retaliatory arrest of Uralkali's chief executive
Vladislav Baumgertner in Minsk last week further highlighted the
deep rift between the Russian and Belarusian
"As a cartel, producers were able to cut supplies in order
to control prices. As competitors, producers will reduce prices
rapidly to gain business," an industry source said.
BPC co-founder Belaruskali appears to be particularly keen
to secure new supply deals after the split left it with limited
global trading infrastructure, which had been dominated by its
Russian partner, traders and industry sources said.
"Many BPC staff have moved over to Uralkali, which also has
much more marketing experience through UKT (Uralkali Trading).
Belaruskali will have to work hard to build its relationships
with customers and find trading partners," said Paul Burnside,
analyst at CRU International.
According to industry sources, Belaruskali has offered India
a new supply contract for the second half of this year at $360 a
tonne cost and freight (cfr), down $67 a tonne from H1 2013
Such an accord would force rival producers to lower prices
not only in India, but also in other markets, including China,
which traditionally sets the lowest potash prices in the market.
Indian industry officials said suppliers have agreed to cut
prices for Indian buyers on existing contracts, although the
size of the discount still needs to be agreed.
In the first tangible outcome of the collapse of tightly
controlled market discipline, spot prices in Brazil have
plummeted to $370 a tonne for granular potash, a more expensive
grade, from around $450 a tonne in early July.
Belaruskali and Germany's K+S Kali have sold
cargoes at $370 a tonne, industry sources said.
Producers and buyers expect prices in Brazil to slip further
to $350-$360 a tonne in coming weeks as producers fight for a
share in the key spot market that imported around 7 million
tonnes of potash in 2012, some 14 percent of global consumption.
"This is a very hard situation for sellers that are looking
to lower prices in order to get business. The ongoing
uncertainties in the market are our main concern," a senior
source at a producer said.
Chinese buyers are negotiating with producers. Canpotex, the
North American cartel, has held talks with Sinofert, said Todd
Coakwell, spokesman for group member Agrium Inc.
Prices in China are likely to fall to around $320 a tonne
cfr after the Indian precedent and as Uralkali supplies northern
China with potash by rail at similar rates, according to the
In Malaysia and Indonesia, two major markets that require
potash for the palm oil industry, buyers continue to sit on the
sidelines awaiting a cue from China or India.
Prices in the two Southeast Asian countries are likely to
drop to around $330-$340 a tonne cfr from $400-$420 a tonne
prior to the cartel breakdown, sellers in the region said.
The price declines are even more dramatic compared to a year
ago, when a tonne of potash in Brazil sold for $525.
The collapse of price discipline has been compounded by
sharp currency weakening in Brazil, India and Malaysia that
makes the dollar-traded commodity more expensive in local money.
Potash prices had been falling in the first half as high
inventories in key markets reduced new sales, pressuring
China's signing of new supply contracts on the last day of
2012 at a steep discount of $70 a tonne from the previous year
to $400 a tonne cfr led prices down in other markets.