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Belarusian Potash signs potash supply deal with China


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Belarusian Potash signs potash supply deal with China

JSC BelarusianPotash Co., said July 14 it agreed to supply potash to a consortiumof Chinese buyers at US$219 per tonne — almost US$100 per tonne less than last year— in a deal that analysts say demonstrates the growing power of potash buyers comparedwith increasingly fragmented producers.

Minsk-based BPC, which markets the production of state-ownedminer JSC Belaruskali,said it will supply Chinese buyers Sinochem, CNAMPGC and CNOOC until the end ofDecember, making this latest deal one of the shortest in recent memory.

BPC director general Elena Kudryavets said the price reflectedthe current situation in the potash market, where weak corn and wheat prices havesubdued demand for crop additives this year.

"The deal will enable [us] to balance demand and supply,"she was quoted as saying in the statement.

Deal slightly higherthan forecast … but good news for producers?

Market analysts agreed the price was slightly higher thanthe US$200 per tonne to US$212 per tonne forecast.

Despite the fall compared to last year's contract, KonstantinYuminov, an analyst at Raiffeisenbank in Moscow, said the deal was "quite goodfor producers," because it was higher than the rumored US$180 per tonne theChinese were offering at the start of the year. He also noted that the Chinese pricewas at a discount of only US$8 per tonne to the Indian price agreed in .

The contract price paid by the Chinese, the biggest potash consumingnation, is used as a price benchmark for buyers in other regions. Global potashproducers traditionally begin Chinese negotiations in January.

But the length of time without a deal this year led some punditsto fear the contract system would break down in favor of a spot-based mechanism,as happened in the iron ore market last decade.

"The Chinese built up an enormous stockpile last year …and that has enabled them to prolong the negotiations," Yuminov told SNL Metals& Mining on July 14.

But the upside for producers from the deal was it should promptbuyers to return to the market, using the China contract as a floor. He said potashsales volumes in the rest of the year should increase as a result.

PJSC Uralkali,the largest potash miner and arch-rival of BPC, said in April it expected worldwidepotash demand to reach58 million to 60 million tonnes this year, down slightly from 61 million tonnesconsumed last year.

Decade-low contractprice reflects producers' weak positions, market fragmentation

Still, Yuminov said the price agreed was the lowest in12 years, reflecting producers' present weak position against the buyers.

Oleg Petropavlovskiy, an analyst with BCS Global Markets in Moscow,agreed. He said although BPC's agreement beat market expectations, the deal wasstill "bad for producers."

"Buyers now have the power," he wrote in emailed comments.

"BPC signed with a consortium of Chinese companies, so they[Chinese] have the consolidated position."

He agreed with some pundits that BPC, which was the first tosign agreements with Chinese buyers last year as well, was most responsible fordisrupting the potash market.

"They are the main problem, as Belaruskali is the main generatorof dollar revenue for the country and they have to sell potash at almost any price."

Belaruskali generated approximately US$3 billion in export earningsin 2015.

Yuminov agreed BPC was more restricted in its production duethe enterprise's importance to the state budget.

"It is one of the main sources of foreign currency for Belarus,so there is no way they can freeze production in order to lift up prices,"he said.

Regardless, the state potash miner has reduced production recently,he said, reflecting similar output cuts by producers elsewhere.

"Overall I would say they are more disciplined than theywere in 2013 right after the split," he said, referring to the acrimoniousexit of Uralkali from BPC, an event that helped trigger a downturn in potash pricesthat year.

Other potash producers have also been winding back productionamid the low prices. Mosaic Co.this week confirmed plansto idle its Colonsaymine in Saskatchewan, while Canadian rival PotashCorp. of Saskatchewan Inc. curtailedproduction from its Allanand Lanigan minesearlier in the year.

At Uralkali, production has been falling for the past 18 months, as the miner deals with lowermarket prices and the flooding of one of its shafts.