(This story appears as part of a special package highlighting the global potash industry.)
* Expect flurry of orders after China potash deal settled
* Potash demand seen rebounding in 2010, growing thereafter
* Producers moving forward on capacity expansion
By Euan Rocha
TORONTO, Sept 23 (Reuters) - After a long stand-off in global potash markets, producers are getting ready for a rebound in orders in 2010 and growing demand for the crop nutrient in the years beyond.
High potash prices, weakening grain prices, tight credit markets and buyer anxiety drove exports of the crop nutrient down more than 70 percent in the first half of 2009, forcing producers to idle more than 40 percent of capacity.
But a major contract with Indian buyers this summer and signs of a drawdown in North American potash inventories have made producers more hopeful. [ID:nN16156605]
“If you go around Central America, South America, Malaysia, Indonesia, Australia, New Zealand, they are all waiting to buy, they all know that they need to buy,” said Bill Doyle, chief executive of Canada’s Potash Corp (POT.TO), the world’s No. 1 producer of the mineral.
Doyle said the Saskatoon, Saskatchewan-based company, which has shuttered about 70 percent of capacity, plans to restart its idled capacity gradually in the first half on 2010 as demand returns.
Much still hinges on the world’s largest potash buyer, China, which has yet to sign its annual potash import contract. That has left other buyers in limbo and created doubts about where the price is headed.
“I think that China will really be an inflection point for many people around the world to get moving,” said Doyle, who expects China to agree a contract in November.
Potash prices peaked at more than $1,000 a tonne at the height of the agricultural commodities boom in 2008. They have fallen to $460 a tonne since then, after India forced producers into lowering prices this summer. [ID:nN13161464]
Prices could fall further if China can wrangle a more favorable deal from suppliers, and many smaller buyers are in no hurry to buy now, only to see prices fall later.
“A lot of people in the supply chain got caught when prices fell, so they have a general reluctance of booking anything,” said Mike Wilson, chief executive of Agrium Inc (AGU.TO), a Canadian fertilizer maker and agricultural products retailer.
Producers and analysts say farmers can only defer potash application for a year or two before crop yields suffer.
“While this is certainly a challenging time for the entire industry, we have been taking advantage of it to progress our investment program and address the tasks that couldn’t be completed when we were operating at full capacity,” said Vladislav Baumgertner, chief executive of Russian producer Uralkali. (URKA.MM)[ID:N2393809]
Uralkali and its peers have been investing heavily in expanding their operations even as demand fell.
Potash Corp’s Doyle said the company’s capacity expansion plans are moving ahead. It plans to have 18 million tonnes of annual installed capacity by 2012, up from current levels of about 12 million tonnes. [ID:nN22302194]
Mosaic Co (MOS.N), a smaller rival based in Plymouth, Minnesota, plans to raise its annual potash production capacity gradually by about 5 million tonnes, from 10 million over 10 years. Agrium is looking to expand its annual capacity to 2.8 million tonnes from its current capacity of 2 million tonnes. [ID:N2374498] [ID:N23266979]
“We remain of the belief that this market will return into 2010 with strong purchases, 5 percent below the strong levels of 2007,” Canaccord Adams analyst Keith Carpenter said in a note to clients.
“Furthermore, we expect 2010 to build-out constructively into 2011, with 2011 being a stronger year on volumes than was experienced in 2007.” (Reporting by Euan Rocha; editing by Janet Guttsman)