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China deal reflects tight potash market

David Stobbe/Reuters
Jun 29, 2011 3:44 PM ET

Canadian potash marketer Canpotex Ltd. announced a deal with China on Wednesday under which it will sell 630,000 metric tonnes in the second half of 2011 at a price of roughly US$470 a tonne. Canpotex said that the volume is low because of its "tight potash supply position."

If that price sounds familiar, it is because Canpotex rival Belarusian Potash Co. recently agreed to a deal with China at the same level.

Under the new Canpotex-China contract, prices will increase about US$70.00 a tonne compared to the first half of the year. Analysts were generally expecting a slightly lower price in this contract, and Desjardins Securities analyst John Redstone wrote that this settlement is indicative of a "tightening market."

"We expect the potash market to be finely balanced between supply and demand through 2012. Consequently, we expect prices to move up to a level that sustains the industry, i.e. our long-term average forecast price of US$600 [per tonne]," he wrote in a note.

Mr. Redstone maintained "buy" ratings on two of Canpotex's owners, Potash Corp. of Saskatchewan Inc. and Agrium Inc. He has a target of $65.50 a share on Potash Corp. and $106.30 a share on Agrium.