News
24.12.2009
China poised to win cut-price potash deal
China is poised to sign the first of a series of long-awaited potash import contracts at a little over half the price of its last deals, heralding potentially a drop in potash markets worldwide.
China, the world's biggest potash consumer, will during the next two days sign an import deal for 1m tonnes of potash with Belarusian Potash Company priced at $350 a tonne including freight, according to trade reports.
The deal with the Uralkali-backed trading company is expected to spawn copycat contracts for about 4m tonnes with other producers, notably in North America, at a similar price, which is considerably below potash group's hopes earlier in the year.
In its last deal, in July 2008, China paid $575 per tonne for potash excluding freight.
'Below our expectations'
The price in this week's deal is equivalent to about $305 a tonne from Canada, excluding freight, the more typical pricing measure, and $290 a tonne from Russia, analysts said.
"These prices are at least $50 [a tonne] below current market, and probably $100 [a tonne] below where a deal could have been done six months ago," analysts at Sterne Agee, the US broker, said.
National Bank Financial in Canada said the price was "below our expectations", while Deutsche Bank termed it "disappointing".
A deal at this level was likely to bring potash prices down in other countries, analysts added.
"While China gets a volume discount, the gap between the new price and current spot prices is too high to be sustainable, particularly in a period when potash inventories are so high, and demand so weak," Sterne Agee said.
Deutsche Bank said it expected international prices, which it placed currently at about $400-500 a tonne including freight, to "adjust downwards" to below $400 a tonne.
Estimates cut
The deal was "unsupportive" to potash groups, Deutsche added, foreseeing a cut of about 15% to consensus earnings forecasts for Israeli fertilizer group ICL and Germany's K+S.
Sterne Agee cut its 2010 earnings-per-share forecast for Canada's PotashCorp, the world's biggest potash producer, by one quarter to $5.50, cutting US-bas Mosaic's by 9% to $2.05.
Nonetheless, potash shares remained relatively resolute, with K+S closing down 1.8% in Frankfurt, and ICL down 1.8% in Tel Aviv.
PotashCorp was 0.7% higher in afternoon trade in Toronto, with Mosaic up 0.7% in New York.
Agrimoney
