Potash recovery seen by 2010

Potash prices and sales volumes are expected to rise this year -- leading to full recovery by 2011 -- despite an impasse in talks between Saskatchewan potash producers and China, says one commodities expert.

Recent news reports indicate talks between Canpotex, the offshore marketing agency for Saskatchewan potash producers, and the Chinese have broken off due to a disagreement over price.

Mosaic CEO Jim Prokopanko told analysts earlier this week the industry was "not prepared to meet the kind of price expectations the Chinese have.

"We are able to find customers willing to pay higher prices and there's no point in lowering it for the Chinese," Prokopanko added.

Prokopanko was referring to news reports last month that the Chinese agreed to pay Belarusian Potash Corp. $350 US per tonne, considered by some analysts to be the price floor for potash.

Potash was selling for up to $1,000 US per tonne in late 2008 before the global recession and financial crisis reduced the ability of developing countries and agricultural producers to pay for potash.

By late 2009, potash prices had dipped to less than $400 US per tonne, and commodities analysts had lowered their forecasts to $360 US per tonne (shipped from Vancouver) for 2010 and $460 US per tonne for 2011.

But analysts say prospects for potash prices have improved in recent weeks, as crop prices have rebounded from last year's lows. Corn prices hit a six-month high in Chicago earlier this week as the late harvest reduced crop quantity and quality in the U.S.

That's one reason why Canpotex may be balking at demands from the Chinese to sell at lower prices, said Scotiabank commodities analyst Patricia Mohr.

"Canpotex felt that the $350 (US per tonne) price delivered in China was on the low side," Mohr said. "They (potash producers) don't want to settle for $350 (US per tonne) delivered into China."

Moreover, Canpotex has recently signed deals with other countries at higher prices, she added. "Canpotex may or may not decide to negotiate a deal with China. They may prefer to bypass the Chinese market altogether and just make additional sales into southeast Asia, Brazil and northern Asia."

For example, Canpotex recently signed a contract with Japan at $400 US per tonne, while Potash Corp. of Saskatchewan sold potash at $350 US per tonne into the U.S., where pent-up demand and rising grain prices are fuelling sales of potash in the American Midwest.

Mohr said this year will be a recovery year for potash prices, with full recovery likely next year. "The year 2010 will be a transition year for potash to much stronger market conditions in 2011," Mohr said in a recent report.

Bill Johnson, spokesperson for Saskatoon-based PotashCorp, said he couldn't comment on Canpotex's negotiations with the Chinese.

But he said Canpotex has had some success with other countries in Asia and elsewhere.

In addition, the U.S. market is coming back as commodity prices have risen recently and many farmers haven't applied potash for the last year or two. "The spring season, particularly in the cornbelt in the U.S., is shaping up to be a strong season for us."

http://www.thestarphoenix.com/Potash+recovery+seen+2011/2418643/story.html