China Seen Delaying Potash Deals to Gain From Slump in Price

China is expected to delay signing potash deals with miners to as late as April and rely on stockpiles of the fertilizer to benefit from prices that are slumping to near decade lows.

The price China agrees at the start of each year with companies including Uralkali PJSC, Belaruskali and North American exporter Canpotex Ltd. is a benchmark for suppliers and customers around the world. Market rates in Brazil that offer a guide to Chinese contract prices had tumbled about 30 percent in the past year to $250 a metric ton as of January, according to Bloomberg Intelligence data. China agreed to buy at $315 a ton for 2015.

“China may delay signing the 2016 contract until March or even April,” Elena Sakhnova, a VTB Capital analyst in Moscow, said on Monday. "The current Brazil spot price indicates that China may sign a new contract as low as $230" as the country gets a discount to the market. As recently as November, VTB estimated a Chinese deal this year at $275 a ton.

Chinese importers will gain by waiting for prices to fall further, said Konstantin Yuminov, a ZAO Raiffeisenbank analyst in Moscow. They will also want to use up costlier stockpiles to avoid having to mark down the value of inventories on their balance sheets at the new cheaper prices, he said. Brazil prices are at their lowest since 2007, both analysts said.

"It looks like 2016 will be very difficult for the potash miners," Yuminov said. 

A delay would follow 2015’s pattern, when agreement was also postponed from January as Chinese growers sought cheaper fertilizer to make up for falling prices for their harvests. Farmers may wait for weaker levels after sinking U.S. corn and soybean prices hurt crop economics last year, Jason Miner, Bloomberg Intelligence analyst, said in a Jan. 7 note.

Potash Corp. of Saskatchewan Inc., a Canadian producer supplying through Canpotex, said Jan. 21 that China has time to negotiate because of its levels of inventories. Uralkali’s press service declined to comment on any talks with China when contacted by Bloomberg.

Uralkali may cut 2016 output by 8 percent to 10.5 million metric tons on weaker markets, Interfax reported on Monday, citing a person at the company that it didn’t identify.

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