Potash Corporation of Saskatchewan Inc. edged almost 14% higher during the last quarter of 2016 despite falling profits and sales. Investors had helped the green results based on hopes of a turnaround in Potash Corp’s status as crop nutrient prices appeared to stabilize, even as the Canadian fertilizer giant announced plans to merge with Agrium Inc. However, the hopes of investors could be easily dashed since India, a key potash-importing nation, just hinted at something that could send demand and prices of potash falling again.
Potash prices are currently at multi-year lows, almost 75% off from their peak of 2009. The fall is mostly driven by the slow demand from the two major potash-importing countries, China and India. India imports almost 100% of its fertilizer needs from producers in the United States and elsewhere. Potash Corp., Mosaic Co. and Agrium export the nutrient through Canpotex — a marketing association formed by the three companies.
All three fertilizer producers have cut their production levels in recent years to address the supply glut but this move has never worked also because the oversupply was still being spurred by producers from other regions. In the meantime, falling prices benefit China, which can now negotiate very low prices for its potash purchase deals. In 2016, China signed one of its first yearly contracts with BPC, Belaruskali’s export arm, at prices almost 30% lower than 2015.
China’s prices usually act as a benchmark for other export contracts. China is, however, not the only player to blame for cheap potash and low potash demand in recent years. Last year, India cut subsidies on potash despite the weak rupee, making potash imports more expensive for the farming community.