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A Canadian-led potash consortium has struck a supply deal with India that suggests prices are firming, but which could point to tough negotiations later in the year.

The buyers in India have agreed to a three-month deal in the second quarter for 600,000 tonnes at $370 (U.S.) a tonne. The buyers are signing well ahead of their spring planting season, hoping to secure supply as demand grows and inventory starts to fall. The sellers, mainly Canada's Canpotex, are taking short-term contracts, instead of the usual one year, counting on prices to keep rising.

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European exporter Belarusian Potash Co. in December inked a deal with China at $350 a tonne, and markets have been watching potash prices for signs.

"The change to spot basis versus typical contract basis for India (April 1 to March 31) suggests to us that India is exercising the same price sensitivity as China," TD Newcrest analyst Paul D'Amico said in a research note.

"It remains to be seen if the format will be permanently changed versus simply being a potential one-off spot transaction. Neither India nor China appear willing to contract for a full annual product supply at sellers' desired price point."

India and China may simply decide not to buy at higher prices when the next round of contract talks begin, Mr. D'Amico said.

Canpotex is the international marketing arm for Saskatoon-based Potash Corp. of Saskatchewan , Calgary-based Agrium Inc., and a subsidiary of Mosaic Co. The deal announced yesterday also includes smaller players Coromandel International Ltd. and Tata Chemicals Ltd.

Canpotex's previous supply contract to India was 850,000 tonnes from August, 2009, to March, 2010, at $460 per tonne and 1.25 million tonnes for the year ending March, 2009.

Earlier this month, Canpotex signed a three-month deal to ship 350,000 tonnes of potash to Chinese fertilizer buyer Sinofert for an undisclosed price, ending a year-long impasse between the two sides. Analysts speculate the price was between $350 and $370, given the India deal.

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About the Author

Brenda Bouw is a freelance writer and editor based in Vancouver. She has more than 20 years of experience as a business reporter, including at The Globe and Mail, The Canadian Press, the Financial Post and was executive producer at BNN (formerly ROBTv). Brenda was also part of the Globe and Mail reporting team that won the 2010 National Newspaper Award for business journalism. More

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