Delay in China potash deal raises doubts over contract’s future (Financial Times, May 12)
After waiting months for an annual potash contract with Chinese buyers to be signed, the international fertilizer industry will certainly be hoping that there will be a sweet reward soon.
The yearly agreement with China and large international producers has long provided the price reference point for the rest of the market. However, last year’s contract was not signed until April, and with negotiations still ongoing, 2016 will see the longest delay in a decade.
A contract may be signed around the time of the International Fertilizer Association’s annual conference in Moscow at the end of May.
Farmers in Brazil and the US, who account for about 28% of the total market, buy their potash based on spot prices, and some analysts believe the delays in the signing signal that the days of the Chinese and the big potash contract are numbered.
In the past, with only a few big players supplying the market, an annual contract gave the buyer assurance on the potash price and volumes over the year, while also providing the seller assurance on the amount that buyers would take.
However, a sharp rally in potash prices in 2008-09 along with agricultural commodities put the fertilizer ingredient under the spotlight, bringing in new players such as BHP Billiton and new investment. A break-up in 2013 of BPC, the export cartel between Uralkali and Belaruskali, also increased competition, adding pressure on prices.
While the annual contract may not disappear immediately, it is clear that China will increasingly become a tougher market for international potash suppliers.
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