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It was only a matter of time before another deal was done in the potash market.
Following last week‘s announcement that top Russian potash producer, Uralkali (MCX:URKA), signed a deal to supply China with 700,000 metric tons (MT) of potash for the first half of 2014, the market has been waiting to see if a similar deal would be fleshed out between China and North America’s potash marketing arm, Canpotex.
On January 24, Canpotex, the marketing agent for North American’s Potash Corp of Saskatchewan (TSX:POT, NYSE:POT), Agrium Inc (NYSE:AGU) and Mosaic Corp (NYSE:MOS), reached an agreement with China’s Sinochem Fertilizer Macao Commercial Offshore Ltd (Sinofert) that was very similar to that of its Eurasian rival. Like Uralkali, Canpotex will supply Sinofert with 700,000 (MT) of potash for the first half of 2014.
In 2013, Canpotex sold one million metric tons of potash to Sinofert in the first half of 2013 for a ticket price of $400 per MT. This year, the company has not divulged the price of the new contract, but it did state that the fertilizer was “priced at current and competitive market levels.”
Potash prices are currently looking at a benchmark price of $305 per MT, which could mean that we’ve at last seen the bottom to the market. Either way, Canpotex’s CEO, Steven Dechka, sees that the agreement between Canpotex and Sinofert “demonstrates the continued importance Canpotex places on the Chinese market.”
A potash recovery?
Daily Finance writes that the Canpotex-Sinofert deal is nothing to scoff at. The publication writes that by comparison, between January and March of last year North American potash producers exported only 2.7 million MT of potash. Overall, China is expected to account for the largest portion of potash demand, solidifying the importance of the Asian market for North American producers.
“We are very pleased to sign a supply contract with our long-term Chinese customer, and to continue our history of being a leading supplier to this important market.” Dechka said in a company statement, adding, “We look forward to meeting China’s future growing potash needs in collaboration with our Chinese partner.”
China’s agreement to buy potash from both Canada and Russia, not to mention the increasing chances of a reunion of the Eurasian potash marketing agent, BPC, as positive indicators for the market. Based on those three conditions, Patricia Mohr, Vice President of Economics and Commodity Market Specialist sees stability in the market moving forward in the first half of 2014. In Scotiabank’s Commodity Price Index released on Tuesday, Mohr forecasts that “a significant price recovery likely awaits the second half of the year,” adding that equity valuations for both Canadian and Chilean potash producers have climbed significantly so far in 2014.
Steve Hansen, analyst at Raymond James sees that with a firm floor price for potash currently established, he expects “sidelined buyers to promptly re-enter the market, providing a firmer bid and more accurate price discovery.”
Further optimism in the market comes from TD Securities Analyst Greg Barns who also sees the hope now that a benchmark has been established.
Company news
Elemental Minerals (TSX:ELM, ASX:ELM) provided an update on the Dingyi Offer, following the announcement of a bid extension on January 23, 2014. The company highlighted that the offer is due to close at 7:00 pm (Sydney time) on March 31, 2014, unless otherwise stated. Furthermore, the offer is subject to shareholder approval, which has yet to be satisfied.
Last week, EPM Mining (TSXV:EPK) updated investors with the progress of its Environmental Impact Statement for the Sevier Lake Playa Sulphate of Potsash project located in southwestern Utah. The Bureau of Land Management (BLM) has initiated the process to post the Notice of Intent (NOI) in order to prepare an EIS in the Federal Registrar. The NOI must be posted prior to in the Federal Registrar prior to the public scoping process can start.
“We are delighted to have the NOI progress to the BLM’s federal office,” said Lance D’Ambrosio, Chief Executive Officer of EPM. “We look forward to its posting in the Federal Register so the public comment process can begin. EPM is very fortunate to have such a great permitting team whose diligent and methodical approach has kept our project moving from one milestone to the next.”
Encanto Potash (TSXV:EPO) announced positive drill results for its second project, the Ochapowace/Chacachas property last week. The well was drilled to a depth of 1,307 meters and two potash members were identified in the Prairie Evaporite formation which included grades and intercepts of 14.3% K2O and 22.7% KCl oover 1,235.1 meters at a width of 6.30 and 17.8%K2O and 28.2% KCl over 1,258.5 meters.
Encanto President and CEO, Jim Walchuck commented “The strong assay results obtained from drilling this well justify the initiation of a resource review for the Ochapowace/Chacachas property. The review may include the calculation of a resource estimate utilizing the well assay information along with the 3D Seismic data which was shot on the property previously,”