Wednesday, April 16, 2008

Chinese Agree to $576 Price Point for Potash

Fertilizer stocks are off to the races yet again this AM... we appear to have hit an amazing contract number in China of $576 but I am not clear if that is landed cost (including shipping) or not.

EDIT @ 11:17 AM: A couple of readers have emailed me that the $576 does NOT include shipping so the true landed cost is $700 or so for China (which would be equivalent to the $625 Indian cost) - in English this means China is paying more than India - which is truly an amazing situation and my $500 pie in the sky forecast for China was actually surpassed by $76. Most people were thinking China would pay $400 - hence my $500 was very aggressive. And it came in at $576.

Either way it is a tremendous number as it would equate to $450 even if it does include shipping. My dream scenario was $500 as I outlined a few weeks ago [Mar 27: Canpotex Potash Contracts Secured with India @ $625]

The last frontier is China, and as I stated I'll be thrilled with even a $500 price point with the volume China will bring to the table.

Really there is not much more to add to this story from what I've been saying since day 1 in the blog; this is truly an amazing secular bull market, the likes of which I don't recall seeing - period. The intensity of the price increases have surpassed even my most rosy projections. And I don't yet see any slowdown ahead. Even if prices leveled off at these levels for years it would be a gold mine of profits.
  • Chinese fertilizer importers agreed on Wednesday to pay more than triple what they did a year ago for potash imports. North American exporter Canpotex has agreed to sell potash in 2008 to Sinofert Holdings, the largest distributor of fertilizers in China, for $576 per tonne, a whopping $400 per tonne higher than the price it paid a year ago.
  • Belarussian Potash Corp, the Russian counterpart of Canpotex, also agreed to raise prices to Chinese importers by $400 per tonne.
  • Due to the timing of this settlement and demand in other markets, Canpotex has only 1 million tonnes to commit to Sinofert through the remainder of this year, Potash Corp said in a statement. "Significantly higher potash prices and extraordinarily tight supply have become much more firmly entrenched since China's previous contract was signed 14 months ago," Potash Corp Chief Executive Bill Doyle said in a statement.
  • China, which is the world's largest importer of potash, usually buys the crop nutrient at a significant discount to other large importers like India and Brazil. But this year China lost some of its pricing leverage as Indian importers, who normally price potash contracts after China, jumped ahead of the queue due to tight global supplies of the crop nutrient.
Long Potash, Mosaic in fund; long Mosaic in personal account

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