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China and Russia Strike a Major Potash Deal

China, one of the world’s biggest potash consumers, has signed a deal with Russia, one of the world’s biggest potash producers, to buy 850,000 tons of potash at $315 per metric ton. The deal was signed by Uralkali’s subsidiary Uralkali Trading S.A, which will export about 8 percent of its total production to the world’s most populous country. Potash is an essential ingredient in fertilizer production and is widely used by farmers. Uralkali’s trading partners will be Sinochem, CNAMPGC and CNOOC from April until the end of this year.

It is still unclear whether the deal will allow optional volumes on the top of agreed 850,000 tons. Moreover, the agreement is only applicable to potash shipments by sea while shipments by rail are governed by other deals. Uralkali supplies about 1 million tons of potash to China by rail yearly and the country is responsible for 19 percent of Uralkali’s sales. In January, the company even decreased the price for the Chinese to $305 per metric ton.

Interestingly, Uralkali’s Belarusian competitor and former cartel partner, Belaruskali, signed a similar deal with the same price tag with China earlier this year. Potash prices went down significantly after Belaruskali had quit the cartel with Uralkali in July 2013. Analysts now expect that Uralkali’s deal with India might be at least 10 percent cheaper for Indian customers compared to last year’s price of $322 per ton. Thanks to the announcement of the deal with China, Uralkali’s shares increased by more than 31 percent trading at $15.5 each. However, next year, the company is expecting lower output due to the flooding at the Solikamsk-2 mine in the Ural Mountains in Russia.

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