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TORONTO — The potash industry is locked in a pricing dispute with India, and Bill Doyle indicated on Thursday that he has no plans to back down.
“I know that certain Indian government officials believe the market shouldn’t apply to them, but that’s kind of like denying gravity,” the outspoken chief executive of Potash Corp. of Saskatchewan Inc. said on a conference call.
Potash prices and demand have moved steadily higher since early 2010, helping the Saskatoon-based company report its best first-quarter results to date: earnings of US$732-million, and gross margin of US$1.1-billion. It also hiked its full-year guidance.
While customers around the world have accepted price increases from potash marketing company Canpotex Ltd., there is one major holdout right now: India, which is refusing to sign a contract reflecting market prices (currently in the neighbourhood of US$500 a tonne). The dispute has gotten somewhat nasty, with accusations out of India that the potash industry acts as a cartel. It is an old complaint.
India does not want to pay more than US$420 a tonne for potash imports, and the government is offering a subsidy that supports that price.
India is one of the potash industry’s most important customers, with expected demand this year of as much as 6.9 million tonnes, according to Potash Corp. The lack of a firm supply contract has created some uncertainty in the potash market.
But Mr. Doyle made it clear that even if a deal with India is not reached in the near term, Potash Corp. is having no problem finding buyers for its potash.
The company revealed that Canpotex’s tonnage is almost fully committed through the second quarter, so even if India signs a contract, there is not much supply immediately available right now.
Mr. Doyle also talked about how badly India needs to increase potash applications in order to avoid serious food inflation and political problems.
Experts said that the public comments from both sides are simply negotiating tactics towards getting a deal done.
“This is a saga that’s going to unfold over the next several months, not today,” said an analyst, who asked not to be named.
“The reality is India is a very large customer and [Potash Corp.] would like to treat that customer well. But if they bend over completely backwards, it screws up marketing to all other regions of the world.”
Mr. Doyle expressed confidence that he can get a deal with India done at a fertilizer industry conference next month. He also said that India is the only country left in the world in which negotiations still get “emotional.”
“Hopefully next time, we can keep everyone’s blood pressure a little lower on the Indian side, because it really is not helpful. But we’re going to get there [to a contract],” he said.
When it came to the fertilizer industry as a whole, Mr. Doyle’s comments were extremely bullish, as usual. He made the point that farmers are generating huge returns at current crop prices, which motivates them to apply fertilizer to boost yields. And fertilizer represents a relatively low percentage of their overall production costs right now, he said.
Investors appear to be less bullish than Mr. Doyle, as Potash Corp.’s shares have flatlined in recent months despite the stellar earnings.
Mr. Doyle made no mention of mining giant BHP Billiton Ltd., which tried to buy Potash Corp. for nearly $40-billion last year but was rejected by the Federal government.