LONDON, U.K. (Reuters) — Potash prices are poised to drop 20 percent after the surprise breakup of the world’s largest producer cartel sent buyers and sellers scrambling to establish new valuations, traders said.
Global trade in potash remains largely on ice after Russia’s Uralkali in July quit the Belarusian Potash Co., which together with a rival North American cartel controlled 70 percent of the market.
Belarus’ retaliatory arrest of Vlad-islav Baumgertner, Uralkali’s chief executive officer, in Minsk in late August further highlighted the deep rift between the Russian and Belarusian producers.
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“As a cartel, producers were able to cut supplies in order to control prices. As competitors, producers will reduce prices rapidly to gain business,” an industry source said.
BPC co-founder Belaruskali ap-pears to be particularly keen to secure new supply deals after the split left it with limited global trading infrastructure, which had been dominated by its Russian partner.
“Many BPC staff have moved over to Uralkali, which also has much more marketing experience through UKT (Uralkali Trading),” said Paul Burnside, an analyst at CRU International.
“Belaruskali will have to work hard to build its relationships with customers and find trading partners.”
According to industry sources, Belaruskali has offered India a new supply contract for the second half of this year at $360 a tonne cost and freight (cfr), down $67 a tonne from contract prices for the first half of 2013.
Such an accord would force rival producers to lower prices not only in India but also in other markets, including China, which traditionally sets the lowest potash prices in the market.
Indian industry officials said suppliers have agreed to cut prices for Indian buyers on existing contracts, although the size of the discount still needs to be agreed.
In the first tangible outcome of the collapse of tightly controlled market discipline, spot prices in Brazil have plummeted to $370 a tonne for granular potash, a more expensive grade, from $450 a tonne in early July.
Chinese buyers are negotiating with producers. Canpotex, the North American cartel that includes potash companies on the Prairies, has held talks with Sinofert, said Agrium spokesperson Todd Coakwell.
Prices in China are likely to fall to around $320 a tonne cfr after the Indian precedent and as Uralkali supplies northern China with potash by rail at similar rates, according to sources.
In Malaysia and Indonesia, which are two major markets that require potash for the palm oil industry, buyers continue to sit on the sidelines awaiting a cue from China or India.
