Canpotex signs China potash supply deal at discount

Three North American potash producers have struck a six-month agreement to supply the crop nutrient to a subsidiary of China’s Sinofert Holdings Ltd. at a steep discount of US$70 per tonne from the last contract price.

Canpotex Ltd., the offshore sales agency for PotashCorp of Saskatchewan, Mosaic Co. and Agrium Inc. — said on Dec. 31 that it would supply Sinofert Fertilizer Macao Commercial Offshore Ltd. with one million tonnes of potash for the first half of 2013. The sales will help reduce a massive potash stockpile from mines in the western Canadian province of Saskatchewan.

In its brief statement, Canpotex released the size of the discount but not the price itself. However, the previous contract price, established in March, was believed to be $470 per tonne. That would mean the new contract represents a 15 per cent discount to supply Sinofert at $400 per tonne.

“It looks to be a trade-off between price and volume,” said Raymond James analyst Steve Hansen. “Canpotex prefers price first. I was surprised by the magnitude of the cut, but it’s a large-volume commitment.”

The price, while much lower than an expected $427 per tonne, should help spur a recovery in demand, said Scotiabank analyst Ben Isaacson.

New supply deals with China and India, the world’s two biggest potash consumers, were expected by late summer. However, ample supplies in China and a decreased Indian government subsidy of farmers’ purchases of the fertilizer delayed the contracts.

North American potash supplies in November were 58 per cent above the five-year average. PotashCorp, the world’s biggest potash producer by capacity, has temporarily shut down four of its Canadian mines to support prices.

A deal with China will provide a much-needed buyer for the nutrient, which is used to boost crop yields, but Chinese and Indian buyers typically pay the lowest prices in the global market. The contracts are closely watched, as international spot market prices are usually pegged at a premium to the contracts.

Sinofert’s lower price still leaves the potash producers with healthy profit margins, said Ernie Lalonde, senior vice-president of mining for DBRS Limited, which rates the debt of companies like PotashCorp.

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