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Potash cuts aimed at bolstering spot prices amid weak market, analysts say

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Potash cuts aimed at bolstering spot prices amid weak market, analysts say

In mounting potash production cuts, major fertilizer producers may be hoping to support falling spot prices exacerbated by a Chinese import ban as they look to secure the best possible long-term contracts with key buyers in India and China, analysts said.

Nutrien Ltd. was the latest fertilizer producer to announce a round of mine suspensions, saying Sept. 12 that it would idle a handful of Canadian operations for eight weeks in the fourth quarter and slash output by about 700,000 tonnes.

The planned cut comes on the heels of similar moves by other major potash producers. In August, Mosaic Co. said it would temporarily shut down the Colonsay potash mine, and the company outlined cuts in September to certain phosphate operations. Likewise, state-owned JSC Belaruskali, a major fertilizer producer, said it may cut potash output by as much as 30% in the next three to four months, according to media reports.

"It does show they are at least undertaking a coincidental but nevertheless coordinated effort to try and keep the spot prices high," CRU Group fertilizer analyst Humphrey Knight said in an interview.

Nutrien reported an average net selling price of US$246 per tonne for potash in the second quarter.

Analysts noted that major fertilizer companies have yet to finalize longer-term contracts with significant Indian and Chinese buyers and that miners may hope to eke out more favorable pricing in those contracts by trying to support spot prices with supply cuts.

Belaruskali's cuts, while coming in response to weak demand, may be an attempt to strengthen its contract negotiating position, BMO Capital Markets analyst Joel Jackson said in a Sept. 5 note. "We believe some of this is just normal seasonal turnarounds stretched longer to balance weak potash markets (for which prices are still falling)," Jackson said. "But some also may be typical gamesmanship ahead of reportedly the first round of negotiations."

Still, Jackson said buyers may have the upper hand in negotiations given crop price weakness, trade-related uncertainties and elevated fertilizer inventories in China, India and the U.S.

Humphrey cast Nutrien's potash cutbacks as a bid to slow falling spot potash prices that are under pressure from weak second half demand. "The declines are beginning to accelerate and I think that has spooked them. This might support them a little. But I don't think it will have a meaningful effect at these levels."

Nutrien, in announcing the cuts, noted weak demand in global markets, especially in the second half. In an interview, Nutrien spokesperson Will Tigley pointed to China, where a ban on some potash imports went live earlier in September.

The Chinese ban covers most seaborne potash imports, Humphrey said. "The rules we know of state that no seaborne exporter of [muriate of potash, or MOP] was allowed to load a vessel with MOP bound for China after Aug. 31," Tigley said in an email. "It means MOP can actually arrive until October sometime." It is not clear how long the ban will be in place, according to Tigley and Humphrey.

Despite short-term weakness in the potash market, Nutrien still expects demand to grow by about 2% to 2.5% over the long term, Tigley said. He also pointed to North America as a possible near-term bright spot.

"We're still planning for a big fall application period in North America," Tigley said, referring to fertilizer use on crops.