February 11, 2010, 11:43 AM ESTBy Maria Kolesnikova and Yuriy Humber
Feb. 11 (Bloomberg) -- India, the world’s largest importer of potash, may start running short of the fertilizer as early as next month, according to International Potash Co., the country’s biggest supplier.
Indian buyers will likely seek to start annual supply talks sooner than in prior years, Andrey Epifanov, deputy chief executive officer of IPC, said in an interview in Moscow. India signed contracts in July to buy as much as 5.3 million metric tons at $460 a ton, according to Moscow-based securities firm VTB Capital. Stockpiles are “sufficient” in India, the head of a local fertilizer maker said today.
While July’s price was 26 percent below the prior benchmark, it was above the $350 a ton later agreed to by Chinese buyers and Belarusian Potash Co. That prompted India to scrap 800,000 tons of optional volume under the annual contracts, according to Elena Sakhnova, an analyst at VTB Capital. She estimates the country’s monthly potash use at about 500,000 tons.
“India tends to consume everything they import,” said Daniel Yakub, a Moscow-based analyst with Citigroup Inc. The country probably has the capacity to stockpile no more than a million tons at a time, he said.
Rice, Fruit
Potash, phosphate and nitrogen are the three main fertilizer ingredients that can be applied separately or as a compound to help improve crop yield. In India and China, potash is mainly used on rice, fruit and vegetables, according to HSBC Holdings Plc. Farmers can skip applications for a year without a “big effect” on yields, according to Citigroup.
“We have sufficient quantity of potash in the country now,” U.S. Awasthi, managing director of Indian Farmers Fertiliser Cooperative Ltd., said in a telephone interview today, putting inventories at 500,000 tons. “Demand will only increase starting in June.”
India may import 4.5 million to 5 million tons of potash this year, IPC’s Epifanov said. The company is the marketer for OAO Silvinit, the largest Russian producer, whose shares VTB Capital’s Sakhnova advises buying.
Industry leader Potash Corp. of Saskatchewan Inc. expects global demand of 50 million tons this year, compared with less than 30 million tons last year as the world recession hurt food demand. Sales were 54 million tons in 2008.
Earnings Slump
The fertilizer maker had forecast in September that net income would decline to $333 million and sales might drop to $1.14 billion under international accounting rules.
“We are seeing a major demand revival in all markets,” Epifanov said Feb. 9. “We’re practically sold out through the end of the first quarter and believe that most other potash producers are as well.”
Silvinit gained 1.6 percent to close at 22,494 rubles on the Micex stock exchange in Moscow, erasing a drop of as much as 1.6 percent. OAO Uralkali, Russia’s second-largest potash producer, rose 3.3 percent to 134.93 rubles.
$1,000 a Ton
India settled its annual contract with IPC and producers including Canpotex and Belarusian Potash in July, delaying negotiations as prices fell. Potash traded at more than $1,000 a ton in some parts of the world in 2008. India’s stockpiles were also depleted when it negotiated last year’s contracts, Citigroup’s Yakub said.
India has “extraordinarily low inventory levels” and may import 5.5 million to 6.5 million tons this year, William Doyle, Potash Corp.’s chief executive officer, said Jan. 28.
“We wouldn’t be surprised to see India conclude earlier than even the expiration of their contract in March,” Doyle said. “That’s how tight the situation is in India.”
No decision has been made on the timing of supply talks because government policy is unclear, IFFCO’s Awasthi said. The fertilizer producer has a 34 percent stake in Indian Potash Ltd., the biggest local importer of the crop nutrient.
Farm Laborers
More than half of the workforce in India, the world’s most populous nation after China, is employed in agriculture, according to the CIA World Factbook.
Potash Corp. expects Brazilian and Indian imports to be 5.5 million to 6.5 million tons this year and China’s to reach 4.5 million to 5 million tons.
Belarusian Potash, a marketer representing Uralkali and Belaruskali, said Dec. 23 it expected to start contract talks with India in March and prices may exceed the $350 agreed to by Chinese buyers. IPC overtook Belarusian Potash as the biggest supplier to India last year.
VTB Capital expects Indian deals to be signed at $385 a ton, including freight. Citigroup says prices should be $360 to $375.
India was the biggest potash importer last year, according to Fertecon, a Tunbridge Wells, England-based fertilizer consultant. India imported 5.09 million tons, while Brazil bought 3.57 million tons and China 1.59 million tons.
--With assistance from Pratik Parija in New Delhi. Editors: Dan Weeks, Stuart Wallace
To contact the reporters on this story: Maria Kolesnikova in Moscow at +7-495-771-7707 or mkolesnikova@bloomberg.net; Yuriy Humber in Moscow at +7-495-771-7743 or yhumber@bloomberg.net
To contact the editor responsible for this story: Stuart Wallace at +44-20-7673-2388 or swallace6@bloomberg.net