Potash demand to take a hit, with China-induced price hike

The projection of a normal monsoon this year might have brought some cheer to Indian farmers, but they are still facing the prospect of having to pay higher prices for potash, or fertiliser potassium. Reason: China, the world’s largest buyer of potash, has signed an annual agreement with producers at a higher price, which traditionally acts as a benchmark for the whole market. So, India, another important potash consumer, which will soon start negotiations, could find it difficult to seal the deal at last year’s price.

The new price is expected to be higher than last year’s which importers will pass on to consumers, according to government sources.

The two biggest potash producers — Potash Corp of Saskatchewan and Russia’s Uralkali — have recently cut output to tighten supply and stem price decline of the nutrient, which helps boost crop quality and yields. 

Uralkali has settled its potash contract with China for supply until the end of 2017 at $230 a tonne CFR (cost and freight). Uralkali announced that its trading subsidiary had negotiated with Chinese consortium including Sinochem, CNAMPGC, and CNOOC for potash deliveries during the August-December period at this rate.

The new contracted price for China supply represents an $11 a tonne increase from the second half of 2016 price of $219 a tonne CFR and includes rebates of around $20 a tonne. 

China imports about 12 million tonnes of potash annually, against India’s 4 million tonnes. This is the reason India’s position as a negotiator of potash prices is not as strong as China’s, according to observers. 

Deepak Chitroda, consultant at CRU, London, said, “Normally, China settles the MOP (muriate of potash) contract with global suppliers ahead of India. Last year, however, India settled the potash contract first at $227 a tonne for July 2016 to June 2017 with BPC, after which China settled the contract at $219 a tonne. India is likely to settle price at around $234-237 a tonne for 2017-18, and this may force Indian importers to raise MRP (maximum retail price) to maintain margins.”

Sources in Indian industry said Potash import was decanalised and 70 per cent of it was used as direct application in fields. Indian Potash, a public sector undertaking, is the biggest importer of the chemical with annual imports of over 2 million tonnes.

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel