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A standoff over potash is leading to cuts in production
12/19/2012 4:30 pm EST
India and China have delayed regular shipments of potash fertilizer since long-term contracts expired on June 30 and March 31, respectively. That has left Asia’s two biggest consumers of fertilizer without new deliveries since the end of the third quarter and has left farmers to either buy from stockpiles or to skip applications entirely.
Negotiations with India have begun with talks with China likely in January or February. The two countries are looking for a reduction from the $490 a metric ton (India) and $470 a metric ton (China) that they paid in their last contracts. The goal, analysts say, might be a price of $400 to $430 a metric ton. Potash hit a high of $800 a metric ton in 2009.
For their part, potash producers—a concentrated group with just seven companies essentially controlling global supply—are determined to protect current prices. Some producers have reduced production in order to support prices. Potash of Saskatchewan, for example, idled four mines for eight weeks in October and November. Uralkali, the Russian company that is the world’s largest potash company by volume, plans to cut output in half between December and March.
Negotiations could drag on for a while. India still has 700,000 tons of potash in its stockpiles and that’s enough to meet demand until March. At recent rates India would then need to import 3 million to 3.5 million tons of potash to get the country’s farmers through the year.
The decisive factor, at least as far as India goes, may be a government review of fertilizer subsidies promised for March.
And it’s almost certain that India won’t agree to a deal until after that review.
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