China, India gain upper hand as potash cartel crumbles

MUMBAI/BEIJING (Reuters) - Agriculture in China and India will be the biggest winner after Russia's Uralkali URKAq.LURKA.MM walked away from one of the world's two big potash cartels, paving the way for consumers to demand hefty price cuts.

The two Asian countries account for around 30 percent of global demand for crop nutrient potash, and had been forced to swallow high prices for a decade in a market dominated by Uralkali’s Belarus Potash Company (BPC) and Canpotex, a North American producer group.

Uralkali ended its joint venture with Belaruskali on Tuesday, citing a deadlock over sales and said it would export via its Swiss-based unit.

Chinese state-owned trading companies held urgent meetings on Wednesday to discuss the break-up, which comes just ahead of this year’s contract negotiations expected in the next month.

“This will up-end the market price ... it strengthens our hand in the next round of pricing talks,” said Kong Xuan, investor relations officer at Sinofert, China’s largest fertilizer distributor.

Potash prices could drop by as much as 25 percent this year, Uralkali said on Tuesday, to about $300 per tonne.

The Russian firm now plans to boost production in a bid to increase sales to India, Brazil and China, where it will ship more than 2.5 million tonnes in 2013, up from 2 million last year.

“(Uralkali) has thrown a bomb by saying prices will go down to $300 per tonne,” a senior executive at an Indian fertilizer firm said, declining to be identified.

“Today if you ask someone to buy potash at $370, they will say no. Why should I buy at such a high level when prices are bound to correct by much more?”

India and China are the world’s leading producers and consumers of grains and among the largest sugar and oilseeds farmers. India has to import all its potash while China imports about half its annual requirements of 10-11 million tonnes.

“Considering ongoing developments, I think sellers will accept our demand and cut the price,” said U.S. Awasthi, managing director of Indian Farmers Fertiliser Co-operative (IFFCO), which buys through Indian Potash Limited (IPL).


Uralkali's focus on volumes will leave Canpotex owners - Potash Corp of Saskatchewan POT.N, Mosaic Co MOS.N and Agrium Inc AGU.N - little choice but to follow.

The two accounted for almost 70 percent of global potash sales and had no qualms about turning off supply when buyers looked likely to gain the upper hand.

Potash prices rose six-fold from 2003 to 2008, trading above $1,000 per tonne at one point, compared to production costs around $60 per tonne for Uralkali.

China has been paying around $400 per tonne for ocean-shipped product in 2013 and about $350 a tonne for rail-trucked product, which is the usual transport method for Uralkali.

The two giant consumers had already shown signs of revolt.

India delayed potash purchases for nearly six months and signed deals earlier this year once producers agreed to cut prices by $63 per tonne, while Chinese buyers held out for a $70 price cut for first half of 2013 supplies.

“Farmers are indiscriminately using urea since it is cheap compared with other fertilizers,” said Awasthi of IFFCO. “If potash prices come down substantially, there is scope for higher potash consumption.”

Indian demand will be contained in the short-term by the weak rupee and lower subsidies. Longer term, demand could jump to 6 million tonnes a year from 3.5 million tonnes, according to Satish Chander, director-general of the Fertiliser Association of India.

In Malaysia, where fertilizer makes up about 60 percent of palm oil planters’ production costs, prices at $300 a tonne will be a welcome relief.

“Lower potash prices have a spillover effect, prices of fertilizer will be cheaper and it will bring costs of production down for palm oil,” said an official with a plantation company in Malaysia.

Uralkali said last month global potash demand in 2013 was likely to rise to 53-54 million tonnes, up from 51 million in 2012, but lower than a record consumption of 56 million tonnes in 2011 and 2007.

($1 = 60.3625 Indian rupees)

Additional reporting by Sonali Paul in Melbourne and Niluksi Koswanage in Kuala Lumpur and Jo Winterbottom in New Delhi; Editing by Amran Abocar and William Hardy