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On Friday, Uralkali signed a deal with Indian Potash. It agreed to the sale of 800,000 tonnes of potassium chloride for $332 per tonne, a $10 increase from last year’s contract, but not as much as Uralkali had hoped.
For example, Belarusian Potash signed a deal with China in late March for $315 per tonne. And while Russia’s Uralkali (LSE:URALL) said at the time that the price was “significantly” less than was possible, it was singing a different tune on Friday when it signed a deal with Indian Potash for $20 less than it hoped. Specifically, it agreed to the sale of 800,000 tonnes of potassium chloride for $332 per tonne, just $10 higher than last year’s contract.
Uralkali CEO Dmitry Osipov has called the agreement a “compromise,” though at the same time has noted that the contract will “undoubtedly become one of the major drivers for industry development, stimulating potash demand.”
North American producers likely to follow suit
That demand is likely to come from North American producers, which are expected to follow Uralkali and secure their own contracts with India. Canpotex, the sales agency for Mosaic (NYSE:MOS), Potash Corporation of Saskatchewan (TSX:POT,NYSE:POT) and Agrium (TSX:AGU,NYSE:AGU), has already officially finalized potash supply contracts for 2015 with all of its major customers in China, including Sinofert, at pricing that meets “current competitive levels.”
The consortium believes that its 2015 shipments to China will be a minimum of about 1.8 million tonnes, surpassing the 1.6 million tonnes shipped the prior year. Potash imports to India are also expected to rise to 5 million tonnes in the 2015 financial year, which began April 1, and the news already has suppliers buzzing.
“Industry potash sales in India are up almost 20 percent in the first quarter of 2015 despite uncertainty about the government subsidy,” Mosaic CEO Jim Prokopanko told Agrimoney last Friday. “We are very optimistic about demand growth in India.”
Any deals will have to be made soon, as India’s cropping season will be starting up shortly. And while North American suppliers seem to be holding up alright in the less-than-stellar fertilizer market, Q1 financials released last week by PotashCorp show that even the biggest producers could do with a demand boost. While the company’s Q1 results show earnings came to C$370 million, or $0.44 per share, up from $340 million in Q1 2014, the company’s share price took a hit when it cut its full-year earnings forecast.
Increased demand could help juniors
An increase in potash demand would likely also help out low- to mid-cap companies, though some are already benefiting from end-user demand. For instance, Encanto Potash (TSXV:EPO) announced just last week that its long-term potash offtake proposal with India is being presented to management at Rashtriya Fertilizer Company for approval. Meanwhile, DuSolo Fertilizers (TSXV:DSF) has inked multiple deals to supply direct application natural fertilizer (DANF) to farmers in Brazil.
On the other hand, some companies not at the stage of signing sales agreements are concentrating on cutting costs and reducing risk. Potash West (ASX:PWN) released positive scoping study results in the quarterly activities report for its Dinner Hill project, cutting down its risk once in production.
Highfield Resources (ASX:HFR) has also cut costs, releasing a definitive feasibility study for its Muga potash project that highlights the project’s low-capex potential and high margins. The company has also been taking steps to extend its reach in Spain, and announced last week that it has applied for three new investigative permits in the province of Navarra to add to its four potash projects in Spain’s Ebro potash basin.
Securities Disclosure: I, Kristen Moran, hold no direct investment interest in any company mentioned in this article.
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