Belarusian Potash Co. has signed a contract with China at prices its largest competitor said would undermine the global market for the soil nutrient.
Belarus will sell potash for $315 (U.S.) a tonne including shipping costs, the state trader said by e-mail, without specifying the volumes or duration of the contract. While it's $10 a tonne more than last year's price, that's "significantly" less than possible, Russia's PAO Uralkali said.
The price China pays for potash has been the market benchmark for more than a decade and is usually set at the start of the year. This year, China's higher inventories and falling prices on the domestic spot market allowed buyers to stretch negotiations well into March, raising concerns that the biggest potash consumer would drive down prices worldwide or settle for spot purchases over contracts.
The Belarus contract "underscores the new-found competitive intensity in global potash markets," Goldman Sachs analysts said in a note. "We believe news of a $10 per metric ton price increase will be viewed negatively by the market, where major producers had been publicly aiming for up to a 10 per cent increase."
Goldman Sachs had used a Chinese contract price of $320 per metric ton in its models, according to the note.
This is the first time that Belarus clinched the first benchmark Chinese import contract. It beat Uralkali, which worked in concert with producer Belaruskali until 2013, or Canpotex Ltd., which exports for Potash Corp. of Saskatchewan Inc., Agrium Inc. and Mosaic Co.
Suppliers could have gotten a more profitable price if BPC, as the international trader for Belaruskali is known, had waited for another two to three weeks, Oleg Petrov, Uralkali's head of sales and marketing, said by e-mail.
"The result of BPC's negotiations in China is in line with the latest Belarusian initiatives –– price decreases in Brazil, Latin America and Asia," Petrov said.
Uralkali's shares pared gains after the news, closing up 0.2 per cent at 154.45 rubles in Moscow.
BPC disagreed, saying a delay would have hurt producers.
"Signing the contract later than March would be disastrous for the market," Elena Kudryavets, head of BPC, said in the statement. "The agreement will serve as a positive signal to the market, help to make it more active, boost stability and confidence of all participants."
Companies typically hold separate talks with China's state importers, and the first signed deal sets a price for the rest. Uralkali and Canpotex have been seeking to negotiate a price increase of $30 and $25, respectively, Petrov said. A $10 increase is "symbolic" and won't provide the necessary support for the market, he said.
"Canpotex's pricing influence is fading – it's almost like they're price takers now rather than price makers," Daniel Greenspan, a Toronto-based analyst with Macquarie Capital Markets, said by phone. "They can either hold out for a higher price or they can get in line with the same price as the Belarusians, or even undercut potentially to not lose any more market share."
Canpotex didn't immediately respond to an e-mailed request for comment. Randy Burton, spokesman for Potash Corp., North America's largest producer, declined to comment.
The quantity of potash that Belarus will ship to China is still under discussion, according to Argus FMB, the consultancy that reported the contract earlier Thursday, citing unidentified sources in China.
The fact that China signed a contract is positive, said Konstantin Yuminov, an analyst at ZAO Raiffeisenbank in Moscow.
"The market needs to see a real indication of demand in China, but this could be judged only after settling contracts by other potash majors," Yuminov said. "The price setup is likely to trigger revival of demand globally as most customers were on the sidelines waiting for benchmark clarification."
While the China contract will affect talks with India and spot prices in markets including Brazil may soften, other producers were unlikely to reach a much higher price increase with China, according to Yuminov.