By Leia Michele Toovey- Exclusive to Potash Investing News
Despite weeks of negotiations, India has yet to reach a potash supply agreement with major potash suppliers, including Canpotex, and is holding out for a lower price in order to bridge the gap between the international price of potash and the benchmark import parity price fixed by the government.
Currently, there is an $80 per tonne gap between the international price of potash and the benchmark import parity price, with potash on the international spot market fetching around $500 per tonne, and the import parity price at $420. India is asking Canpotex for a 10 percent price discount, saying that the country is a larger importer and therefore should not have to pay the same price as smaller importers around the world. In 2010-11, India imported nearly 6.4 million tonnes of potash, and paid $370 per tonne.
Last week at the International Fertilizer Industry Association’s (IFA) annual conference in Montreal, Canpotex and India continued negotiations, but were still unable to reach an agreement. While India is holding firm on the point that if the country is to meet its annual budget goal, it cannot afford to pay more for potash, while Canpotex and other potash suppliers are not willing to budge. Speaking at the IFA conference, Wayne Brownlee, CFO of Potash Corp (NYSE:POT, TSE:POT) commented that “The need for potash in India is substantial and it’s a big risk for them to take a potash holiday.” Brownlee was also quick to point out that grain prices are likely to continue to climb through 2011 and probably into 2012, creating attractive margins for farmers, thereby incentivizing them to use more potash to boost yields.
Canpotex, the marketing arm of North American potash producers Potash Corp of Saskatchewan, the Mosaic Company (NYSE:MOS), and Agrium (NYSE:AGU, TSE:AGU) controls around one third of the global potash capacity. Canpotex and the North American potash producers have, in the past, been accused and even faced court hearings over accusations of price-fixing and collusion. While there are some smaller junior potash companies coming on the scene, it has been hard for smaller companies to gain an entrance into the market due to the high barriers of entry. It is extremely expensive to get a potash mine up and running, and in the past, the price of potash was not enough to justify the high cost of establishing a mine. Even the world’s largest potash company in the world, Potash Corporation of Saskatchewan, was bank-rolled by the Canadian government for years. The recent merger between Uralkali (LON:URKA) and Silvinit means that there will be a strong number two potash supplier, BHP is currently working on its Janzen Project, and for once there are quite a few junior potash explorers on the scene.
Junior potash explorer Allana Potash (CVE:AAA) announced Monday that it has intersected strong potash mineralization in drill hole DK-11-12 at its Dallol project in Ethiopia. Hole 12 intersected 15.2 meters of 26.17% potassium chloride, including 37.84% potassium chloride over 4.10 meters. Allana Potash plans to include data from hole 12 in its upcoming NI 43-101 technical report, which is scheduled to be released in the middle of June. “This hole is important as it provides a strategic link between the historic Musley Deposit and the center part of the evaporite basin intersected in Hole 4,” said President and CEO, Farhad Abasov. Hole 12 was drilled vertically, approximately 1,500 meters east of Hole 8, and intersected the sylvinite, intermediate and kainitite zones of potash mineralization. The mineralized area in this region is now at least 4 kilometers long by 5 kilometers wide, said Allana, and has the potential to add significantly to the property resource. The area was not drilled previously, and was not included in the last resource estimate completed in 2008, which estimated 73.9 million tonnes of kainitite mineralization and 31.3 million tonnes of sylvinite resource for a combined 105.2 million tonnes, with a composite grade of 20.8 % potassium chloride.
Ethiopian Potash Corp. (CVE:FED) has established a 50 person field camp which includes two drill rigs on the Company’s Danakil concession, which marks the beginning of its 15,000 meter drilling program. The objective of this initial drill program is to confirm, expand, and upgrade the 43-101 inferred resource of 128 mil tonnes grading 21% outlined by ERCOSPLAN. The drill program is designed to increase the inferred resources and upgrade the resources in the core area to indicated and measured resources. This will provide the basis for a new 43-101 resource estimation and economic studies commencing in early Q4 of this year.