By Leia Michele Toovey- Exclusive to Potash Investing News

Share Potash prices are poised to drop about 25 per cent, after Russia’s Silvinit set a precedent by undercutting fellow potash producers by setting a long term contract with India at a record low of $460 per metric tonne. International Potash Co, the marketing arm of Russia’s biggest producer, OAO Silvinit, agreed last week to supply India with 850,000 tonnes, by March 10.

This benchmark low price is about 26 per cent below a previous low, and other major consumers including China will likely use it as a bargaining chip to ink contracts at lower rates. The contract with India is key because of the way the potash industry works. Large potash contracts are usually negotiated between brokers and foreign governments anxious to secure a predictable supply of fertilizer for their farmers. Prices set in China, India and Brazil tend to dictate how much companies charge on the spot market to other customers.The price of potash for immediate delivery will likely drop to $530 to $560 a tonne, from $735 to $750, according to Elena Sakhnova, an analyst at VTB Group in Moscow.

The Indian deal took many in the industry by surprise, especially considering that Canpotex signed a deal last Thursday with South Korea and Taiwan to secure shipments through the second half of the year for $700. It signed a similar deal with Japan last month. “Silvinit’s deal was disappointing and unnecessary, because it is quite likely India would have easily paid the higher price for potash,” said Patricia Mohr, a commodities specialist at Scotia Capital. “Negotiations are under way with China, and I wouldn’t be surprised if there wasn’t a contract signed at all in 2009.”

Prices for potash quadrupled in 2007 and 2008 to $1,000 as the demand for food combined with as well as the demand for crops that could be used to produce biofuels, skyrocketed. The $1,000 price tag was treated not as a peak by industry watchers, however, but rather a base from which prices would inevitably climb. Prices are still at historically high levels, given that potash averaged $270 a tonne from 2003 to 2008.

Company News

Mosaic Co, North America’s second- largest fertilizer producer, rose the most in eight months in New York after reports surfaced that both Vale and BHP are preparing a bid for the company. Mosaic is the world’s largest maker of finished phosphate products and the second-largest producer of potash by capacity, according to the company’s Web site. U.S. trading of bullish Mosaic options jumped to a record on July 10 amid acquisition speculation that the fertilizer producer may be acquired. Mosaic has risen 43 per cent this year.

Athabasca Potash said on Thursday it is exploring a possible sale of all or part of the company, sending its shares soaring 42 per cent. Athabasca said in March it had sufficient funds to complete a pre-feasibility study of its Burr project in Saskatchewan, but was seeking a strategic alliance to develop the project further. Analysts estimate that a new potash project that produces about 2 million tonnes annually, can take 5 to 7 years to construct and cost about $2.5 billion, a prohibitively high cost for a junior exploration company. Global interest in potash, a key crop nutrient, has risen sharply in the last couple of years, as a very small group controls about 75 per cent of global supplies of potash and its price has until recently remained stubbornly high. Possible bidders for Athabasca could include mining giant BHP Billiton and Brazilian mining giant Vale.

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