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By Leia Michele Toovey- Exclusive to Potash Investing News

China, the world’s largest consumer of potash, will reportedly seek lower prices for the fertilizer component just weeks after the ink dried on the contract between India and International Potash Company (IPC), the marketing arm of Russia’s biggest potash producer, for $460 per tonne.

As reported in my July 20^th commentary, 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. IPC agreed to supply India with 850,000 tonnes by March 10. The benchmark low price was about 26 per cent below a previous low, and analyst immediately forecasted that other major potash buyers, including China and Brazil would likely use it as a bargaining chip to sign contracts at lower rates.

Now, just weeks later and it seems more likely that that forecast or dropping potash prices is set in stone. Analysts predict that China may aim for the lower end of a $400 to $450 a tonne range on a free-on-board basis. But, India’s deal is not the only bargaining chip that china will come to the table with. China also has weak demand and plentiful supply on its side. Prices of the nutrient tumbled from a record last year as farmers around the world cut purchases because of slumping grain prices.

China is the world’s biggest potash market. “China had carry-over stocks of 6.8 million tonnes at the beginning of this year, and while there was a little consumption in the first quarter, there was hardly any used in the second quarter,” said Liang Bin, analyst at China Securities Co. Domestic potash prices have dropped to 3,000 Yuan ($439) a tonne from the record 4,500 Yuan a ton seen in the third quarter last year, still a 40 per cent jump from the beginning of 2007, Beijing Orient’s Xu said.

Potash demand has slumped as farmers have been doing away applications of the expensive nutrient in the face of the collapse of grain and food prices. Potash proponents claim that this will slingshot the price of the nutrient next year, as farmers can do away with fertilizer applications on their fields for one year. However, if farmers skip two years a drastic drop in yields will necessitate the application of nutrients

Company News

Plummeting potash demand is hitting producers in the pocket books. Agrium Inc., North America’s third-largest fertilizer producer, said second-quarter profit fell 42 per cent as demand for potash declined. Net income slid to $370 million, or $2.35 a share, from $636 million, or $4, a year earlier. Agrium is seeking to acquire rival CF Industries Holdings Inc. to increase its investments in nitrogen-fertilizer production.

Intrepid Potash Inc posted a 24 per cent decline in second-quarter profit. “Potash sales volumes continue to be at reduced levels as dealers showed greater hesitancy to refill their inventories and to take on price risk during the second quarter,” Chief Executive Bob Jornayvaz said. In the latest quarter, the company posted net income of $39.1 million, or 52 cents a share, compared with $51.7 million, or 69 cents a share, a year ago. Revenue for the quarter dropped 14 per cent to $162.3 million. Sales in the second quarter were 80,000 short tons compared to 213,000 short tons in the second quarter of 2008.

Israel Chemicals reported potash sales slid 75 per cent in the second quarter, sending its shares down more than 3 per cent. ICL, a maker of fertilizers and specialty chemicals, said second-quarter potash sales amounted to 347,000 tonnes, down from 1.41 million tonnes in the April-June period in 2008. “The reduction in potash production in the first and second quarters of 2009 stems primarily from a deliberate decrease in Europe of production volumes and their adaptation to the volume of potash demand and storage capacity in Europe,” it said. Last month, ICL signed a deal to supply 750,000 tonnes to an unnamed Indian customer at $460 a tonne. Israeli media identified the customer as Indian Potash Ltd (IPL). The nine month deal is worth $345 million.

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