One of the world's largest potash companies has made a deal to provide China with 700,000 tonnes of potash per year, adding stability to a market that had been wracked by months of uncertainty.
Reports Monday say Uralkali has signed a pact to provide 700,000 tonnes of the fertilizer to China at an average price of $305 US per tonne.
In July, the potash market was thrown into disarray when a longstanding agreement between Uralkali and Belaruskali to co-operate on sales fell apart with Uralkali accusing its rival of undercutting their agreement to maintain prices by selling more potash on the side.
The breakup of that agreement put a chill on the whole sector, with most publicly traded potash-related stocks losing around 20 per cent of their value overnight.
"Uralkali’s change in sales strategy created tremendous market uncertainty and a state of paralysis in most regions," PotashCorp. CEO Bill Doyle said at the time.
In its third quarter results last fall, PotashCorp revealed that the average price it received for a tonne of potash fell by more than a quarter to $307 a tonne, down from $429 a year ago.
The original Uralkali agreement had set the floor price of potash at around $400 a tonne. The new deal is well below that but is nonetheless seen by some as positive news for potash as it sets a floor price and ending uncertainty.
"Any deal at a price higher than $300 is a success for Uralkali,” Konstantin Yuminov, a Raiffeisenbank analyst in Moscow was quoted by Bloomberg as saying.
Others say the boom in potash prices is over, and the prospects for the once hot sector are looking bleaker. "In the long term, we believe the Potash market will continue to be characterized by oversupply with subsequent downward pressure on market prices, as no projects have been cancelled to our knowledge, adding some 13 million tonnes to the market by 2018," investment bank Nomura said in a note Monday.
Canadian producers like PotashCorp, Agrium and Mosiac sell potash to the world in a cooperative cartel similar to the Uralkali one known as Canpotex.
Shares in the two former were slightly higher on the TSX on Monday. Mosaic shares trade on the NYSE which is closed on Monday.