September 23, 2009 / 4:59 PM / 10 years ago

POTASH-UPDATE 1-Russia's Silvinit to follow BPC on China deal

* Not holding separate talks with Chinese buyers

* Running at over 80 pct capacity in July-August

* Full-year 2009 output seen falling to 3.5 mln tonnes (Adds details, quotes, background; in U.S. dollars unless noted)

By Natalya Shurmina

YEKATERINBURG, Russia, Sept 23 - Russia’s Silvinit SILV.MM will follow the lead set by Belarussian Potash Co when agreeing on a deal to supply the crop nutrient to China, a source at the company said.

Silvinit will cut potash output by about 30 percent to a maximum 3.5 million tonnes this year, the source said, although production levels of the fertilizer rebounded to more than 80 percent of capacity in July and August, thanks to a market-moving deal with India.

Silvinit’s trading arm, International Potash Co, agreed in July to sell 850,000 tonnes of potash to India at a delivered price of $460 a tonne. BPC and others quickly followed the lower-than-expected price set by the first India deal.

But Silvinit has no plans to set the pace on the benchmark Chinese contract. now awaited by the market, the source said on condition of anonymity due to the sensitive nature of the talks.

“BPC is playing first fiddle in the negotiation process with China. We are not holding negotiations at present,” he said.

Belarussian Potash Co, or BPC, is the export agent of Russian miner Uralkali (URKA.MM) and accounts for more than 30 percent of global potash sales. It hopes to conclude a deal with China by the end of this year.

“The major suppliers will agree the first contracts, and the conditions of these contracts will be the guide for all the others, including Silvinit,” the source said.

Citigroup analyst Daniel Yakub said in a note that Silvinit was unlikely to have broken ranks with other suppliers when agreeing to the Indian deal, which at the time caused a sharp decline in fertilizer company stocks.

“Large negotiators saved face and got some volumes moving. This was an attempt by the suppliers to get markets restarted,” he said.

80 PERCENT CAPACITY

The resumption of shipments to India after the contract allowed Silvinit to load more than 80 percent of capacity in July and August, the company source said.

The price of potash, a mineral used by farmers around the globe to boost soil nutrients and raise crop yields, soared to record levels above $1,000 a tonne last year during the height of the agricultural commodity boom.

Though prices have since declined, the small group of companies that controls about three-quarters of global supply has helped buoy prices by idling about 40 percent of world potash capacity since the second half of 2008.

Potash Corp of Saskatchewan POT.TO, the world’s largest producer, has idled about 70 percent of its capacity this year due to weak demand, the company’s chief executive, Bill Doyle, told Reuters in an interview. [ID:nN21299092]

Silvinit, which operates mines in Russia’s Ural mountains, expects potash output to fall from the 5.1 million tonnes it produced last year, the company source said.

“If we follow the most optimistic scenario, we will produce 3.5 million tonnes this year,” he said.

In the nine months to the end of September, output is forecast to reach 2.3 million tonnes, compared with 4.3 million tonnes in the same period of last year, he said.

The source did not explicitly forecast production for the final quarter of the year. According to Reuters calculations, the difference between nine-month output and the full-year forecast would give fourth-quarter output of 1.2 million tonnes. (Writing by Robin Paxton; editing by Rob Wilson)

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