Potash fertilizers: contract signed, but its price is lower than anticipated

On January 15, potash supply contract with China was signed at USD 400/ton.

Belarusian Potash Company had to agree to a lower price for potash supplies after a contract between the Canadian trader Potash Corp. and Chinese buyers had been signed. Reduced price could be compensated by increased supply volume, which would contribute to the restoration of Belaruskali’s production volumes.

2012 BPC performance results demonstrate that projected goals have not been implemented and BPC has not managed to sell potash fertilizers worth USD 3 billion. In 2012 only a six-month contract was signed with China at USD 470/ton for supply of 400 thousand tons and optional 100 ton deliveries. Reduced demand from India and China resulted in lower capacity utilization by potash producers by 20%-30%.

To avoid price reduction for potash fertilizers Uralkali and Belaruskali were to reduce capacity utilization to 50% in early 2013. The agreement by a Canadian trader to supply 1 million tons at USD 400/ton resulted in the new price level on the mainstream market, China, which is USD 70/ton lower than the previous contracts. In the given circumstances, the BPC’s consent to new price for Chinese consumers has been a matter of time.

The new contract envisages supply of 700 thousand tons, plus an optional purchase of 300 thousand tons, which is double the volume of previous contract. Despite the decline in price and the need to adjust prices for other consumers, this contract will ensure similar level of foreign currency proceeds due to increased production volumes. However, this is a definite success for customers who managed to achieve reduced contract price.

Thus, the signed contract will increase the capacity load. To maintain the current level of foreign currency proceeds, the BPC has to increase the potash supply by 17.5%. If the project is successful, in 2013 foreign currency proceeds could exceed 2012 figures.