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The Potash Corp. of Saskatchewan's recently suspended Picadilly mine near Sussex, N.B., on Thursday, January 28, 2016.

Darren Calabrese/THE CANADIAN PRESS

Canada's potash producers are staring at a tough year ahead as negotiations with key Chinese buyers drag on far past their usual wind-up date, while depressed prices for the crop nutrient appear poised to plummet even lower.

Potash isn't traded on public exchanges, so annual deals struck with large Chinese buyers provide an important industry benchmark. The Asian giant accounts for slightly less than a quarter of global potash demand.

Producers from Canada, Russia and Belarus often agree on a contract with Chinese buyers in January, helping to set the tone of world prices for the entire year ahead.

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This year, in contrast, talks are still dawdling along, as a glut of fertilizer hangs over the market.

CRU Group, a widely followed metals and mining research firm, says that Chinese negotiators are now asking for a potash price below $200 (U.S.) a tonne, far below last year's $315 a tonne.

The bargain-basement bid "reflects a hardening negotiating stance and likely indicates continued delays in a potash contract settlement while raising the possibility of no contract settlement this year," Andrew Wong of RBC Dominion Securities Inc. wrote in a note Friday.

The Chinese demands have not been publicly confirmed, Mr. Wong cautioned.

He points out that Canadian producers can still strike short-term contracts with Chinese buyers this year even in the absence of an annual deal.

However, the slow progress in reaching a deal "increases the likelihood that shipments will be below expectations in 2016," he said.

Joel Jackson of Bank of Montreal concurred. "Our $230-a-tonne estimate for China now looks impossible as Chinese buyers play hardball," he wrote in a note Friday.

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Suppliers may be able to gain bargaining power by first striking a deal with Indian buyers, he said, "but clearly the potash dynamic is getting worse and producers will face tough choices."

In a dramatic contrast from the situation a few years ago, buyers of potash have gained the upper hand as supplies run far ahead of demand. The surplus is not expected to disappear any time soon.

About 25 expansions to existing potash projects will be completed by 2019, according to a report last year from the International Fertilizer Industry Association.

In addition, at least four large new projects in Canada, Russia and Belarus will be completed within the next four years, pouring more capacity onto world markets.

Potash Corp. of Saskatchewan Inc., the world's largest fertilizer producer, has been throttling back on production to help narrow the gap between supply and demand. Among other moves, the Saskatoon company closed its just-opened mine in Picadilly, N.B., earlier this year.

Potash Corp. declined comment on the Chinese negotiations.

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