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Ample customer inventories provide little reason for Chinese buyers to rush into a contract.Andrey Rudakov/Bloomberg

The most important thing happening in the potash industry right now is what is not happening.

Producers from Canada, Russia and Belarus have yet to sign 2016 contracts with Chinese importers. The price China pays for potash is considered a key benchmark for the commodity and deals in past years have often been concluded in January, setting the tone for the year ahead.

Last year, when negotiations dragged into March, it was considered a worrisome portent for potash producers. This year's even longer delay underscores the growing strains on the industry.

Swelling supply of the crop nutrient and slumping demand continue to drag down spot prices, while ample customer inventories provide little reason for Chinese buyers to rush into a contract.

In a report entitled "It just feels like another leg down is coming," Joel Jackson of BMO Capital Markets predicted this week that Chinese contracts will settle around $240 (U.S.) a tonne, a steep fall from $315 a tonne last year.

A major step down in the Chinese potash price would increase pressure on Potash Corp. of Saskatchewan Inc., which cut its dividend in January for the first time in company history. The company's "dividend seems at risk again," Mr. Jackson said in an interview, although he does not expect any action from the company until late this year or next year.

Potash Corp. declined comment, as did Canpotex, the Saskatoon-based marketing and distribution organization that handles exports for Potash Corp., Agrium Inc. and Mosaic Co.

Uralkali PJSC, the world's biggest miner of potash by volume, said on a conference call Monday that it expects a deal with China in the first half of this year, but cautioned that the timing was uncertain.

Vladislav Lyan, director of sales and marketing for the Russian company, said currency weakness in many countries was dampening demand for potash, which is priced in U.S. dollars. In addition, high inventories are weighing on the market.

He estimated that global potash demand fell by 3 to 4 per cent in 2015, to around 61 million tonnes. He expects volume to decline further this year to between 58 million and 60 million tonnes.

"We should admit that this year's potash volumes will be heavily impacted by the timing and outcome of the Chinese potash contract," he said.

Potash prices soared over $800 a tonne in 2008 but have slid since, with recent spot prices in Brazil hovering around $240 a tonne.

Among the factors pushing down potash prices are bumper crops of corn and wheat, which have reduced the incentive to invest in fertilizers.

Meanwhile, competition among producers has accelerated since the bust-up in 2013 of the East European potash cartel, consisting of Uralkali and Belaruskali of Belarus. The European group and Canpotex once controlled nearly 70 per cent of the potash market.

As competition has expanded, so has supply.

K+S AG, a German company, will begin producing potash at its Legacy project in Saskatchewan later this year. A large mine in Turkmenistan is expected to swing into operation next year.

On top of that, BHP Billiton PLC, which made an unsuccessful run at taking over Potash Corp. back in 2010, continues to beaver away at its huge Jansen mine in Saskatchewan, although that project is not expected to begin production until after 2020.

Mr. Jackson says potash prices are still above the incremental cost of producing the commodity. However, Potash Corp. and Mosaic are balancing the market by throttling back on output, and that situation may not continue forever.

Much depends on Chinese demand, which is why the contract talks are so crucial. The Asian giant accounts for about 20 per cent of global potash consumption. It produces nearly half its requirements domestically and turns to seaborne imports for the remainder.

Mr. Jackson says he expects the first 2016 contracts with China to be signed in another month, perhaps at the International Fertilizer Industry Association meeting in Moscow in late May.

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