When it comes to markets for potash, they don’t come more important than India. After all, it is the world's biggest importer of this vital product. There’s a good deal of news swirling around regarding India - the plans to buy projects abroad, the breakdown in talks with Belarus and now threats that the Indians will cut their imports due to high prices.
Let’s take the last point first. The managing director of the Indian Farmers’ Fertilizer Co-operative (IFFCO), U.S. Awasthi, has been quoted in the Indian press as saying that his company may reduce its potash imports by as much as 35 per cent due to the present high price - and a price that is just three weeks away from getting even higher with the $US530/tonne price sticker to apply from January 1.
Will they do it?
You can make an argument either way. First, yes, they can do it (in principle- but it would involve only contracts not yet signed). Just look at the gold business: India is the biggest importer in the world of the yellow metal and, from rich businessman to peasant farmer, acquiring gold is one of life’s priorities. But when the price goes too high, buying dries up. In the September quarter, India was one of only three countries that did not show increased buying for investment (Japan and the U.S. being the others) and that was due to the strong rebound in the price of bullion. So, however much they want it, the Indians can sit on their hands if they don’t want to pay the asking price. Also, they tend at such times to switch to silver because it so much cheaper; you might be able to argue that other fertilizers might be favoured in preference to potash. After all, many developing markets have over-used urea in the past.
Moreover, there are already signs that Indian farmers are resisting higher prices. Awasthi said there had been a dip in demand for both potash and phosphate fertilizers as domestic prices doubled. (Remember, the rupee has declined dramatically against the greenback, so that is exacerbating the problem.)
Second (and this is the big "but" follow-up to the previous point), there is one good reason that the Indian authorities would hesitate before cutting fertilizer supplies. They don’t want more food riots, as occurred when the prices of onions and other important crops skyrocketed. Consider this, also: the Indian government has called on the agricultural sector to double food production over the next decade. How is that going to occur without liberal lashings of fertilizer?
Meanwhile, the attempts to get Indian investment in potash projects abroad seem to be getting nowhere. The financial daily, the Business Standard, is now reporting that the plan for an Indian stake in Belarus company Belaruskali has been shelved. The latest news is that negotiations between the Indian and Belarus governments have got nowhere. One official was quoted saying that “no further discussion has happened but they (Belaruskali) have not formally communicated to us that the deal is over”. Belarus had previously offered 20 per cent of the company for $6 billion.
So, it's an impasse.
India has been unable to secure price reductions for potash from either Russia/Belarus or Canada. The notion of a rebate on prices seems to have withered on the vine. Only Russia’s Phosagro has agreed to lower its price for diammonium phosphate, but no one else - potash or phosphate - has followed suit.
The additional complication is that Indian buyers have signed contracts, and the producers of potash will be looking to ensure those contracts are honoured. The Indian buyers only wiggle-room is not taking the potash over which they have options; they will be importing the tonnages that are firm sales.
Then there is the Indian fertilizer industry’s plea for the government to put up $20 billion to help them buy foreign projects. No progress on that one so far.
The Indians seem to have few potash options.