Potash prices are poised to drop some 20 percent after the surprise breakup of the world's largest producer cartel sent buyers and sellers scrambling to establish new valuations, traders said.
Global trade in the material - one of three nutrients vital for agriculture - remains largely on ice after Russia's Uralkali in July quit the partnership Belarusian Potash Co (BPC), which together with a rival North American cartel controlled some 70 percent of the market.
Belarus' retaliatory arrest of Uralkali's chief executive Vladislav Baumgertner in Minsk last week further highlighted the deep rift between the Russian and Belarusian producers.
"As a cartel, producers were able to cut supplies in order to control prices. As competitors, producers will reduce prices rapidly to gain business," an industry source said.
BPC co-founder Belaruskali appears to be particularly keen to secure new supply deals after the split left it with limited global trading infrastructure, which had been dominated by its Russian partner, traders and industry sources said.
"Many BPC staff have moved over to Uralkali, which also has much more marketing experience through UKT (Uralkali Trading). Belaruskali will have to work hard to build its relationships with customers and find trading partners," said Paul Burnside, analyst at CRU International.
According to industry sources, Belaruskali has offered India a new supply contract for the second half of this year at $360 a tonne cost and freight (cfr), down $67 a tonne from H1 2013 contract prices.
Such an accord would force rival producers to lower prices not only in India, but also in other markets, including China, which traditionally sets the lowest potash prices in the market.
Indian industry officials said suppliers have agreed to cut prices for Indian buyers on existing contracts, although the size of the discount still needs to be agreed.
In the first tangible outcome of the collapse of tightly controlled market discipline, spot prices in Brazil have plummeted to $370 a tonne for granular potash, a more expensive grade, from around $450 a tonne in early July.
Belaruskali and Germany's K+S Kali have sold cargoes at $370 a tonne, industry sources said.
Producers and buyers expect prices in Brazil to slip further to $350-$360 a tonne in coming weeks as producers fight for a share in the key spot market that imported around 7 million tonnes of potash in 2012, some 14 percent of global consumption.
"This is a very hard situation for sellers that are looking to lower prices in order to get business. The ongoing uncertainties in the market are our main concern," a senior source at a producer said.
Chinese buyers are negotiating with producers. Canpotex, the North American cartel, has held talks with Sinofert, said Todd Coakwell, spokesman for group member Agrium Inc.
Prices in China are likely to fall to around $320 a tonne cfr after the Indian precedent and as Uralkali supplies northern China with potash by rail at similar rates, according to the sources.
In Malaysia and Indonesia, two major markets that require potash for the palm oil industry, buyers continue to sit on the sidelines awaiting a cue from China or India.
Prices in the two Southeast Asian countries are likely to drop to around $330-$340 a tonne cfr from $400-$420 a tonne prior to the cartel breakdown, sellers in the region said.
The price declines are even more dramatic compared to a year ago, when a tonne of potash in Brazil sold for $525.
The collapse of price discipline has been compounded by sharp currency weakening in Brazil, India and Malaysia that makes the dollar-traded commodity more expensive in local money.
Potash prices had been falling in the first half as high inventories in key markets reduced new sales, pressuring producers.
China's signing of new supply contracts on the last day of 2012 at a steep discount of $70 a tonne from the previous year to $400 a tonne cfr led prices down in other markets.