China agrees long-awaited potash deal to set price floor

Global potash producers breathed a sigh of relief this week after China, the world’s largest buyer of potash, signed a long-awaited contract for the fertiliser at a higher-than-anticipated price. The deal should set a benchmark floor under the potash market for the remainder of the year.

On Thursday, Chinese state-owned fertiliser buyers agreed a price of $219/t for China’s annual potash contract with BPC, the export arm of the Belarussian fertiliser manufacturer Belaruskali. While a price of $219/t for potash is 30% lower than last year’s prices, it does come in higher than had been expected by market analysts, with Credit Suisse forecasting a contract price of $210/t.

Shares in other potash producers such as Mosaic and the Canadian-based group Potash Corp all rose strongly on the back of the news. Now that this first deal is in place between a potash exporter and China, these other suppliers are expected to follow BPC’s example in the coming weeks by signing supply contracts with China at the same price.

Depressed market

Over the last 18 months, potash prices have been weighed down by a number of factors including weak agricultural commodity prices and reduced supply discipline among potash producers. However, the length of time it has taken for China and suppliers to agree this deal has also weighed heavily on fertiliser markets.

As the world’s largest potash importer, the annual supply contract signed with China acts as the price benchmark for the entire market all year round.