India has agreed to buy potash from Russia's Uralkali at the lowest price in seven years and about 25 percent less than last year's level, the Russian company said on Tuesday.
The bargaining power of buyers has increased since Uralkali, the world's largest potash producer, broke away in July from a sales alliance with Belarus - Belarusian Potash Company - with global potash prices falling more than 20 percent.
"We hope that the contract will help stimulate potash application rates in India, and support the country's agriculture at a time of continued population growth and rising food demand," Oleg Petrov, Uralkali head of sales, said in a statement.
One of India's biggest fertilizer importers - Indian Potash Limited (IPL) - has agreed to buy 800,000 tonnes of potash at $322 per tonne on a cost and freight (CFR) basis in the year starting April 1.
A year ago India had agreed to pay $427 per tonne but subsequently persuaded the supplier to cut prices to $375 a tonne after a slump in the Indian rupee and the drop in global spot potash prices.
"We have agreed on the price (for 2014/15). Now we are negotiating volume," one of the Indian buyers told Reuters earlier on Tuesday.
A team of Uralkali sales officials is in India to finalize deals for more than 1 million tonnes with several customers, a senior fertilizer industry official has said.
Uralkali declined to comment on when other deals with Indian customers, which agree on the same price every year, were expected to be signed.
Uralkali's contract price is likely to emerge as the benchmark for other suppliers to India, such as the powerful North American trading group Canpotex Ltd, owned by Potash Corp of Saskatchewan, Mosaic Co and Agrium Inc.
Other potash producers that supply India include Germany's K+S AG, Jordan's Arab Potash Co and Israel Chemicals.
"Uralkali is keen to sell as much as it can to Indian buyers. There is competition among suppliers to corner Indian share," a senior official at a Mumbai-based fertilizer company said.
"Since Uralkali has set a price, I think Canpotex will also seal deals this month," the official said.
Uralkali said it had expected that the conclusion of the Indian contract would boost the global potash market growth.
Demand in India
Despite the drop in global prices, Indian potash imports are likely to remain subdued this year as local prices will remain elevated due to the government's decision to cut potash subsidies by nearly a fifth.
India, which relies on overseas supplies to meet its entire potash demand, has cut potash subsidies for the year that started on April 1 in an effort to contain a ballooning fiscal deficit.
The country has accounted for about a tenth of global shipments over the past five years, but its share has been slipping as local prices rise due to subsidy cuts and a weaker rupee.
India's potash imports should remain largely steady around 3.5 million tonnes in 2014/15 due to the subsidy cut, P.S. Gahlaut, managing director of Indian Potash Ltd, the country's biggest importer, said last month.
In January, Uralkali slashed prices for China, the world's largest potash consumer, by 24 percent to $305 per tonne, hoping to set a new floor for global prices.
India usually pays a slightly higher price for potash than China due to additional freight and as it seeks shipments in small consignments.