India May Pay as Much as 5.4% More for Potash Supplies

India, dependent on imports for all its potash needs, may pay 5.4 percent more for the fertilizer to secure supplies as world prices rise, government officials said.

Buyers including Indian Potash Ltd. may offer as much as $390 a metric ton for the year starting April 1 to sellers led by International Potash Co., from $370 this year, two officials said, declining to be identified as the information is private. Finance Minister Pranab Mukherjee chaired a meeting of ministers in New Delhi yesterday to discuss fertilizer prices, they said.

Prices for agricultural nutrients such as potassium, nitrogen and phosphorus are increasing, as expanding food demand and unfavorable weather put a strain on global supplies of wheat, corn and soybeans. Potash is mainly used to boost yields of rice, sugar cane, fruit and vegetables in India. The country is the world’s second-biggest producer of rice, wheat and sugar.

The higher Indian import price would still be $10 lower than the rate agreed by Chinese buyers. OAO Uralkali’s trader Belarusian Potash Co. agreed to a six-month supply agreement with China to deliver 600,000 tons at $400 a ton including freight, it said last month.

“A price below $400 a ton would likely be viewed as negative for the sector,” according to a Mackie Research Capital Corp. report by John Chu and Michael Chiu yesterday. “India usually settles $20 higher than China’s settlement price.”

Potash, a form of potassium, rose to $606 a ton at end- 2010, 13 percent higher than at the end of the previous quarter, according to a Bloomberg index of U.S. Midwest retail prices.

Surging Prices

Canpotex Ltd., the international trading arm of North America’s largest potash producers, raised the cost for export to Asia and Latin America by $30 a ton, it said in a statement.

That raises standard-grade potash prices 7 percent to $460 a ton and granular-grade 8 percent to $475 a ton, both including the cost of freight to the port of destination, it said.

The price of corn, used to make livestock feed and ethanol, has soared 84 percent in the past year, wheat surged 67 percent and soybeans are up 41 percent. Rice futures reached a 27-month high on Feb. 9.

India’s government sets the benchmark import price for potash because it provides a subsidy based on the rate. India was the world’s biggest potash importer in 2009, according to Fertecon, a Tunbridge Wells, England-based fertilizer consultant. Should importers pay more than $390, they would have to bear the difference or pass the extra cost to farmers, the government officials said.

Ministry Cap

The Ministry of Chemicals and Fertilizers capped the subsidy for potash users for the fiscal year ending March 31 at 14,692 rupees ($323) a ton, based on the $370 import price for the 12-month period as the government moved to a fixed allowance system from a variable one. In previous years, the government paid importers the difference between the import price and a fixed domestic retail price.

India will absorb higher fertilizer costs by increasing subsidies to help companies maintain “reasonable” prices for farmers, Fertilizer Secretary Sutanu Behuria said yesterday.

India may import 5.8 million to 6 million tons of potash in the year starting April 1, compared with a contracted 5.8 million tons a year earlier, P.S. Gahlaut, managing director of Indian Potash, the country’s biggest importer, said in a telephone interview yesterday.

“Demand for potash normally goes down when prices rise, but I hope it stays,” said Gahlaut, whose company accounts for 60 percent of India’s overseas purchases of the soil nutrient. “We always get a good price as we buy large volumes.”

To contact the reporters on this story: Pratik Parija in New Delhi at pparija@bloomberg.net; Bibhudatta Pradhan in New Delhi at bpradhan@bloomberg.net

To contact the editors responsible for this story: James Poole at jpoole4@bloomberg.net; Hari Govind at hgovind@bloomberg.net.

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