Potash prices head for 20 pct drop after cartel disintegrates

Reuters
A view of waste heaps at the Belaruskali potash mine near the town of Soligorsk, some 130 kms (81 miles) south of Minsk, March 17, 2013. REUTERS/Vasily Fedosenko/Files
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A view of waste heaps at the Belaruskali potash mine near the town of Soligorsk, some 130 kms (81 miles) south of Minsk, March 17, 2013. REUTERS/Vasily Fedosenko/Files

* Producers scramble to sell after BPC breakup

* Prices in Brazil, a key spot market, fall to $370 a tonne

* Belaruskali offers India deep discount on new contracts

By Ron Bousso

LONDON, Sept 5 (Reuters) - Potash prices are poised to dropsome 20 percent after the surprise breakup of the world'slargest producer cartel sent buyers and sellers scrambling toestablish new valuations, traders said.

Global trade in the material - one of three nutrients vitalfor agriculture - remains largely on ice after Russia's Uralkali in July quit the partnership BelarusianPotash Co (BPC), which together with a rival North Americancartel controlled some 70 percent of the market.

Belarus' retaliatory arrest of Uralkali's chief executiveVladislav Baumgertner in Minsk last week further highlighted thedeep rift between the Russian and Belarusianproducers.

"As a cartel, producers were able to cut supplies in orderto control prices. As competitors, producers will reduce pricesrapidly to gain business," an industry source said.

BPC co-founder Belaruskali appears to be particularly keento secure new supply deals after the split left it with limitedglobal trading infrastructure, which had been dominated by itsRussian partner, traders and industry sources said.

"Many BPC staff have moved over to Uralkali, which also hasmuch more marketing experience through UKT (Uralkali Trading).Belaruskali will have to work hard to build its relationshipswith customers and find trading partners," said Paul Burnside,analyst at CRU International.

According to industry sources, Belaruskali has offered Indiaa new supply contract for the second half of this year at $360 atonne cost and freight (cfr), down $67 a tonne from H1 2013contract prices.

Such an accord would force rival producers to lower pricesnot only in India, but also in other markets, including China,which traditionally sets the lowest potash prices in the market.

Indian industry officials said suppliers have agreed to cutprices for Indian buyers on existing contracts, although thesize of the discount still needs to be agreed.

In the first tangible outcome of the collapse of tightlycontrolled market discipline, spot prices in Brazil haveplummeted to $370 a tonne for granular potash, a more expensivegrade, from around $450 a tonne in early July.

Belaruskali and Germany's K+S Kali have soldcargoes at $370 a tonne, industry sources said.

Producers and buyers expect prices in Brazil to slip furtherto $350-$360 a tonne in coming weeks as producers fight for ashare in the key spot market that imported around 7 milliontonnes of potash in 2012, some 14 percent of global consumption.

"This is a very hard situation for sellers that are lookingto lower prices in order to get business. The ongoinguncertainties in the market are our main concern," a seniorsource at a producer said.

CHINA LEADS

Chinese buyers are negotiating with producers. Canpotex, theNorth American cartel, has held talks with Sinofert, said ToddCoakwell, spokesman for group member Agrium Inc.

Prices in China are likely to fall to around $320 a tonnecfr after the Indian precedent and as Uralkali supplies northernChina with potash by rail at similar rates, according to thesources.

In Malaysia and Indonesia, two major markets that requirepotash for the palm oil industry, buyers continue to sit on thesidelines awaiting a cue from China or India.

Prices in the two Southeast Asian countries are likely todrop to around $330-$340 a tonne cfr from $400-$420 a tonneprior to the cartel breakdown, sellers in the region said.

The price declines are even more dramatic compared to a yearago, when a tonne of potash in Brazil sold for $525.

The collapse of price discipline has been compounded bysharp currency weakening in Brazil, India and Malaysia thatmakes the dollar-traded commodity more expensive in local money.

Potash prices had been falling in the first half as highinventories in key markets reduced new sales, pressuringproducers.

China's signing of new supply contracts on the last day of2012 at a steep discount of $70 a tonne from the previous yearto $400 a tonne cfr led prices down in other markets.

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