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Canadian potash partnership announces spot sale to China's Sinofert

By: Lauren Krugel, THE CANADIAN PRESS

8/02/2010 5:20 PM | Comments: 0

CALGARY - A partnership representing Saskatchewan's three main fertilizer producers has agreed to sell 350,000 tonnes of potash to a Chinese buyer at what it described only as "competitive" spot prices.

The announcement Monday comes about a month after Vancouver-based Canpotex Ltd. and its Chinese counterpart appeared to be at an impasse over an agreement on 2010 potash prices.

Canpotex sells potash internationally on behalf of Agrium Inc. (TSX:AGU), Potash Corp. of Saskatchewan (TSX:POT) and Mosaic Co. (NYSE:MOS). All three companies produce potash in Saskatchewan, the world's largest source of the crop-strengthening mineral.

"It's a good deal for us. It's a good deal for them, I assume. They need the product," Agrium chief executive Mike Wilson said Monday without divulging the price.

In December, a consortium of European potash producers inked a year-long agreement with the Chinese to sell the fertilizer for US$350 per tonne.

But Canpotex indicated the price locked up between Belarusian Potash Co. and the Chinese buyers wouldn't be acceptable.

As such, signing deals quarter-to-quarter is the "best way to supply them now," Wilson said.

It's likely the two sides had trouble seeing eye-to-eye on long-term potash prices, and decided to instead negotiate smaller shipments over shorter time frames, said Ravi Sood, chief executive of Lawrence Asset Management in Toronto.

"It is entirely possible we see quarterly pricing going forward with both the suppliers and the users betting that they will fare better with shorter pricing intervals," he said.

Sinofert, China's biggest fertilizer supplier and distributor, is more than 53 per cent owned by state-run Sinochem Group. Saskatoon-based Potash Corp. owns 20 per cent of Sinofert's shares, with the remainder publicly traded.

Under the deal Monday, the fertilizer will be shipped to China before the end of March. All of the production marketed by Canpotex has been fully committed through the first quarter of 2010.

Canpotex plans to announce second-quarter pricing in early March "after thoroughly reviewing the changing and much-improved overseas potash market conditions."

According to a report issued two weeks ago by Scotiabank, spot potash prices at the Port of Vancouver fell to about US$345 per tonne at mid-January, but appeared to have hit their cyclical bottom.

During the recession, farmers held off on buying fertilizer, causing prices to fall, but demand appears to be ramping up again, Wilson said.

"The market's tightening. There should be upward pressure on it," he said.

Scotiabank commodities specialist Patricia Mohr said Monday that spot U.S. and international potash deals signal a "pickup" in the market.

"My expectation would be that prices will gradually firm up as we move through this year, and it looks as though prices in March are going to be higher than the price in early 2010," she said.

"You're going to have a gradual pickup in price as you move through this year and the volumes will be better."

Agrium shares fell C$1.08 cents to $62.02, a drop of 1.7 per cent, on the Toronto Stock Exchange Monday. Potash Corp. shares dropped $1.71 to $109.34, a decline of about 1.5 per cent.

On the New York Stock Exchange, Mosaic shares were off 64 cents at US$54.54.

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