March 20, 2012 / 2:57 PM / in 6 years

Canpotex, Sinofert sign new potash supply contract

(Reuters) - Potash marketing consortium Canpotex said on Tuesday it has signed a contract with Sinofert Holdings (0297.HK) to supply the Chinese fertilizer maker with 500,000 tons of potash in the second quarter of 2012 at prices in line with year-earlier levels.

The supply deal is a big boost for both Canadian and Russian potash miners, which are among the biggest producers of the crop nutrient. The global potash market has been largely stagnant for months and many large potash miners have scrambled to cut output in a bid buoy prices.

Canpotex, jointly owned by North American fertilizer makers Potash Corp (POT.TO), Mosaic Co (MOS.N) and Agrium Inc (AGU.TO), said the new contract includes an option to increase shipments by 200,000 tons for delivery during that same period.

The deal comes close on the heels of Russian potash miner Uralkali’s own deal with China to sell up to 500,000 tons of potash to China at $470 per ton on a cost-and-freight (CFR) basis in the second quarter.

Russian and Canadian potash producers typically ink supply deals with China at about the same time and at similar price levels. The contracts are closely watched by the market as international spot market prices usually get pegged at a premium to these contracts. Canpotex’s last supply deal with the Chinese was signed last June at the $470 a ton.

INVENTORY LEVELS

The Canpotex announcement on Tuesday drove gains in shares of Potash Corp, Mosaic and Agrium. Potash Corp, the world’s top producer of the nutrient, was the biggest gainer. Its shares were up 4.6 percent at C$46.70 in midday trading on the Toronto Stock Exchange, while those of Mosaic and Agrium rose 1.4 and 2.2 percent, respectively.

The deal will help to rein in soaring potash inventory levels in North America. Last week, industry data indicated that potash inventories at the producer level had fallen for the first time since October last year, largely due to the many production cuts.

Spot prices for the nutrient have remained largely stable at or around the $500 a ton level.

Despite some tightening, potash inventories in North America at the end of February, at about 3 million tons, were still 34 percent above the previous or five-year average.

Still, Potash Corp and its competitors remain confident that inventory levels will begin to tighten as the spring planting season in North America gathers pace.

Both Canpotex and Russian suppliers have yet to ink a supply deal with Indian buyers.

In a recent interview with Reuters, Steven Dechka, the head of Canpotex, said a new contract with Indian buyers would not come until the second half of the year.

($1=$0.99 Canadian)

Reporting By Euan Rocha Editing by Peter Galloway

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