Uralkali confirms China potash supply deal at $305/T

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Russia's Uralkali, the world's top potash producer, slashed prices by 24 percent in a new semi-annual supply deal with China, hoping to set a new floor to global prices that collapsed after it quit a powerful sales alliance with Belarus.

Global potash prices were thrown into a tailspin after Uralkali broke away from its BPC joint venture with Belaruskali in July, sparking competition between producers that had previously maintained a high discipline on pricing.

Although the new benchmark represents a sharp fall from last year's contract price of $400 a tonne, market sources said it was not far removed from the levels prevailing in the spot market since July.

China, the world's largest potash consumer whose contracts are seen as a benchmark by the bulk of market participants, has agreed to buy 700,000 tonnes of potash from Uralkali in the first half of 2014, the Russian company said on Monday.

"The contracts between Uralkali and the Chinese companies clearly testify to growing demand and the beginning of market recovery," Oleg Petrov, Uralkali head of sales, said in a statement.

Uralkali has agreed to sell potash to a consortium headed by CNAMPGC, a leading Chinese agrochemical corporation, at a price of $305 per tonne on a cost and freight (CFR) basis in the first half of 2014, Uralkali said.

CNAMPGC plans to buy 600,000 tonnes of potash, while China's state-owned conglomerate Sinochem Corp has agreed to buy 100,000 tonnes, a source familiar with the deal told Reuters. Uralkali declined to comment on those details.

New Benchmark 

The new supply deal will offer producers and buyers around the world a benchmark that could revive global demand for potash, one of three key nutrients, market participants said.

"I am not sure if this is good news or bad news because this price is not very different from the current reality. But it will create a benchmark that could spark momentum," a senior source at one of the global potash producers said.

"The current physical demand is not bad and the new price could put prices in proportion," he added.

The new Chinese benchmark is likely to maintain prices in southeast Asia, where potash is essential to the palm oil industry, at around $300 a tonne on a CFR basis, several market sources said.

"India's contracts end in the coming weeks so they will probably sign new contracts at a premium of $15 to $20 a tonne to the Chinese contracts," one source said.

Uralkali's withdrawal from the BPC trading venture, which controlled 40 percent of the $20 billion global market of the crop nutrient, left a group called Canpotex - owned by Potash Corp of Saskatchewan, Mosaic Co and Agrium Inc - as the world's top export group.

In an informal poll by Reuters before reports of the settlement, nine equity and industry analysts on average expected the Chinese contracts to pay Uralkali and North American producers $305 per tonne, including cost and freight.

Expectations ranged widely, however, from estimates of $290 per tonne to $325. Analysts expected the contracts to cover 1 million tonnes of potash or slightly higher.

Potash Corp spokesman Bill Johnson said he would not speculate on when Canpotex might settle with Sinofert, China's largest fertiliser supplier and distributor.

However, traditionally pricing terms of major contracts have closely followed those of Canpotex's rivals, he added.

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