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Canpotex and India have finally come to a six-month deal in which India will pay, at least at the onset, $470 per tonne including freight, for potash, approximately the same rate that China is paying.
By Leia Toovey- Exclusive to Potash Investing News
Canpotex will resume shipments to India in the October-to-December 2011 period, according to Mike Wilson, CEO of Agrium. Wilson declined to reveal volumes covered by the deal, but said that they were split evenly between the last quarter of 2011 and the first quarter of 2012. In the last quarter of 2011, India will pay $470 per tonne, however, in the first quarter of 2012 the price will go up to $530 per tonne.
In the end, the deal was a compromise for both parties. India had said earlier that due to the amount of potash it purchases it should get a deal. Dr. U.S. Awasthi, Managing Director of Indian Farmers Fertilizer Co-operative Ltd. previously said “India is a large buyer and hence India should get around 10 percent discount over the spot prices because one has to differentiate between a large buyer and a small buyer. Current spot prices are around $500 (per tonne) and we expect at least $50 per tonne discount to make it around $450 per tonne.” When Canpotex was not immediately willing to lower their prices, The Fertilizer Association of India reacted by saying the industry would “take a holiday from importing potash” and would instead use up whatever stockpiles it had.
Canpotex claimed that India was “bluffing” when it said that it would take a potash holiday, and warned that prices would likely only go up, the longer the country waited. Canpotex was unwilling to make a deal at the $450 price point, citing low inventories and high demand from other consumers. Later, Awasthi did come back and say “We do not mind buying potash at US $470 a tonne, but the global suppliers are demanding US $500, which we cannot accept at any cost.” In the end, a deal was made, and now with already barren potash stockpiles, potash producers are expecting further supply-chain tightening.
Earnings
Earnings season is upon us, and last week we reported on the record-setting earnings of Potash Corporation of Saskatchewan (NYSE:POT). Since Potash Corp, the world’s largest potash producer, released those expectation-shattering earnings, there have been a few other impressive earnings reports from other potash producers.
On Wednesday, Intrepid Potash (NYSE:IPI), the US’s largest potash producer, announced that both earnings and sales were up in the second quarter. The Denver, Colorado based company said it sold between 220,000 and 230,000 tonnes of potash in the quarter ended June 30, compared to 129,000 tonnes sold in the same quarter last year. Its average net sales price rose by about $20 per tonne from the first quarter, to between $455 to $465 per tonne.
Arab Potash Co., a miner that extracts potash from the Dead Sea, reported that its net profit for the first half of 2011 rose 128.7 million dinars to US $181.7 million, compared to 70.2 million dinars in the year-on-year period. Revenue in the second half was 308.8 dinars compared to the same time period last year.
Agrium Inc. (NYSE: AGU) announced on August 3rd, record consolidated net earnings of $718 million for the second quarter of 2011, compared with net earnings of $518-million in the second quarter of 2010. Net earnings from continuing operations, which exclude earnings associated with the AWB Limited Commodity Management businesses (the majority of which was sold to Cargill on May 11, 2011) were $728 million for the second quarter of 2011.
In their earnings release, Agrium addressed the bullish factors supporting their business, including that, looking ahead the outlook for agricultural markets remains positive, with high crops prices adding fundamental support to potash prices. Just like Potash Corp CEO Bill Doyle mentioned, Agrium announced that the global potash market continued to strengthen in the second quarter, with current stockpiles at very low levels. They also mentioned important data compiled by The Fertilizer Institute, which indicated that North American potash producers produced at 95 percent of previous monthly peak production through the first half of 2011. Despite high capacity utilization rates, potash inventories have not been rebuilt, and potash inventories were 14 percent below May 2011 levels and 27 percent below both June 2010 and five year average levels.
Disclosure: I, Leia Toovey, have equity interests in Potash Corporation of Saskatchewan.