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India renegotiating potash contracts after cartel collapse

Belarusian ambassador visits India’s fertilizer secretary, which analysts see as a step towards price correction
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First Published: Thu, Aug 15 2013. 09 24 PM IST
A file photo of a Uralkali potash mine. Uralkali announced that post-split, its strategy will be to boost sales, which may push prices to less than $300 a tonne from the current $400. Photo: Alexander Zemlianichenko Jr/Bloomberg
A file photo of a Uralkali potash mine. Uralkali announced that post-split, its strategy will be to boost sales, which may push prices to less than $300 a tonne from the current $400. Photo: Alexander Zemlianichenko Jr/Bloomberg
New Delhi: India may soon reap a windfall in reduced prices of potash, a fertilizer, after the European cartel collapsed in July, leading to more competition among producers.
Russia’s Uralkali, the largest producer of the farm nutrient, walked out of the cartel it had with Belaruskali, which has already slashed global prices by some 25%. India, the world’s fourth largest consumer of potash after China, US and Brazil, is renegotiating the contracts it has with the Belarusian potash company.
Belarusian ambassador Vitaly A. Prima visited fertilizer secretary Sudhir Mittal on Wednesday, which analysts see as a step towards price correction. Prima’s visit is a clear indication that there is a high likelihood of contracts being restructured, said an analyst with a Mumbai-based brokerage with an interest in the fertilizer sector, requesting anonymity.
The visit certainly heightens the likelihood of Belarusians agreeing to India’s “appeal” of lower prices, according to P.S. Gahlaut, managing director of India Potash Ltd, the country’s largest importer of the soil nutrient. “We are initially aiming a price reduction of at least 11%, somewhere around $350-360 per tonne on the grounds of rupee depreciation by a commensurate percentage,” Gahlaut said. “We have conveyed the message and their response is awaited.” He expects to hear from Belarus in a week or two.
“But the process is not that easy,” the analyst said. “If any revision happens, it will only be after September quarter. And it’s not likely to happen in one go. Initially the price may come down to $340-350 per tonne.”
On 30 July, Uralkali announced that post-split, its strategy will be to boost sales, which may push prices to less than $300 a tonne from the current $400. Uralkali is the lowest-cost producer of the farm nutrient and this statement is seen by experts as a threat to Belaruskali.
State-owned Belaruskali is said to be struggling with high cost overruns. It might not be able to sustain the price of $300 a tonne, an industry expert said on condition of remaining unnamed.
However, after the split Belaruskali is reaching out to its customers, some as far away as Brazil. The company exports as much as 20% of its output to South American coffee planters and plans to build ports in northeastern Brazil to boost exports. It also entered into a joint marketing agreement with the Qatar-based Muntajat QJSC on 6 August to sell up to three million tonnes of potash a year to global markets, according to Muntajat’s website.
Amidst all this, the North American cartel, called Canpotex Ltd, is still standing, at least for the time being. It consists of two Canadian firms—Potash Corp. of Saskatchewan Inc., Mosaic Co.—and US-based Agrium Inc., which together account for about 38% of global potash capacity. Bill Doyle, chief executive of Potash Corp., said he doesn’t see any change to its Canpotex marketing venture.
But the American cartel may not be able to hold on to its prices. Potash Corp.’s implied rating has fallen to BBB minus, a level above speculative grade, based on the cost to insure against losses in the company’s bonds, according to ratings agency Standard & Poor’s.
“At present, we are only in talks with Belaruskali,” said Gahlaut. “We don’t have any contract with Uralkali. And we will consider talking to Canpotex later.” Gahlaut declined to buy potash in bulk after the steep decline in the price of the commodity as he sees that price may further decline.
At present, it imports one million tonne from Belaruskali. “I just hope the cartel doesn’t form again as it would bring us back to square one,” Gahlaut said.
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First Published: Thu, Aug 15 2013. 09 24 PM IST