OAO Uralkali, the world’s biggest potash producer, has cut shipments to China by rail to reduce sales on the spot market and strengthen its hand in price negotiations for its next contract with the country.
“We cut our railway shipments to China from an average of 150,000 tons a month to about 50,000 tons to help to get a more balanced market,” Chief Executive Officer Vladislav Baumgertner told reporters today in Moscow.
China’s stockpiles have grown to about 4 million metric tons, and the domestic price for the fertilizer remains low, Baumgertner said. Producers including Uralkali have signed first-half supply agreements at a discount to previous contracts. Uralkali is the only overseas potash supplier with rail links to China, enabling it to sell on the spot market.
Uralkali won’t sign a new contract for the third quarter and plans instead to wait until November, when it expects to get a premium, Baumgertner said. Signing in September or October may mean the current price, of $400-a-ton, would roll over into the next accord, he said.
Belarusian Potash Co., which trades the nutrient for Uralkali and Belaruskali, signed an accord with China in January for first-half shipments, agreeing to a $70-a-ton discount on the previous price of $470. Canpotex Ltd., which exports potash for Potash Corp. of Saskatchewan Inc., Mosaic Co. and Agrium Inc (AGU), reached a similar deal in December.
Uralkali is likely to boost rail shipments given that it won’t have a contract with China in the second half, VTB Capital’s analyst Elena Sakhnova and Raiffeisen Bank’s Konstantin Yuminov said last week.
If North American producers sign a deal in the Northern Hemisphere summer, the new contract price will be at a discount to the current contract price, Baumgertner predicted.
Uralkali estimates 2013 potash market volumes to be at 53 million tons to 54 million tons and sees the global market balanced until 2018 when new projects may start up.
“The main threat to the market now is coming from BHP Billiton’s” Jansen project, Baumgertner said. Should it go ahead as planned, Uralkali may shelve its own green-field projects, he said.
BHP continues to review Jansen and no decision has been made, Andrew Mackenzie, BHP’s CEO, said on May 14.
Uralkali sees 2013 output of about 9.5 million tons to 10.5 million tons depending on the situation in the Chinese market, Baumgertner said. The company has a more optimistic outlook for India and expects potash consumption to grow to 4 million tons this year from about 3.5 million tons last year, with half supplied by Belarusian Potash.
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