Belarus' deal to sell potash to China at a lower-than-expected price has prompted India to seek a similar bargain ahead of the signing of new contracts this month, a move that could hit spot rates already under pressure due to stiff competition.
Belarusian Potash Company (BPC) last month agreed to raise the price of potash exports to China, the biggest consumer and which sets the benchmark, by $10 to $315 per tonne, undercutting Russian and North American rivals who were negotiating for a hike of $25-$30.
India, which imports all its potash needs, bought the crop nutrient at $322 per tonne on a cost and freight basis last year, the lowest level in seven years. It is seeking to keep the price at the same level this year.
India usually pays slightly more than China due to additional freight and as it buys in small consignments.
"The Chinese deal has highlighted the oversupply in the market," said P.S. Gahlaut, managing director of state-run Indian Potash Ltd, the country's biggest importer. "As far as India is concerned we cannot afford a price rise."
Officials from Russia's Uralkali, the world's largest producer, are expected in India in the third week of April and any supply agreement around last year's price will put pressure on spot prices that collapsed after Uralkali broke away from a joint trading venture with BPC in 2013.
Spot prices are trading around $330 per tonne, down nearly 18 percent since the breakup of the BPC, amid competition between global producers who had previously maintained high discipline on pricing.
Apart from Uralkali, Canada's Potash Corp of Saskatchewan and Agrium Inc, U.S.-based Mosaic Co, Germany's K+S AG, Jordan's Arab Potash Co and Israel Chemicals supply the crop nutrient to India.
Potash demand is price sensitive in India, which accounts for about a tenth of global shipments. Imports fell from over 6 million tonnes in 2010/11 to less than 3 million tonnes in 2012/13 as prices rose amid a reduction in government subsidy.
"If foreign suppliers ask for a higher price, then we have to increase retail price to farmers," said Gahlaut, a key negotiator with overseas suppliers. "That will ultimately reduce demand. So there is dilemma, whether to increase prices or demand."
If prices remain steady, demand could rise 10 percent in 2015/16 from last year's 4.5 million tonnes, he told Reuters.
A four percent fall in the rupee since the last potash deal and which makes purchases relatively expensive will also weigh on negotiations for this fiscal year, said a senior official with an Indian fertiliser maker who did not want to be named.
Elena Sakhnova, analyst at Moscow-based VTB Capital, said India would have to settle for a similar increase such as the one China negotiated.
But a senior official with a state-run Indian fertiliser company said India could delay potash purchases to pressure sellers.
"We have an inventory of around 600,000 tonnes, which is enough for a quarter," said the official who did not wish to be named as he is not authorised to talk to the media. "But suppliers can't wait for months as they are sitting on huge inventories."