Uncertainty hangs over potash market, but fundamentals should be supportive: TD

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The cutting face of a potash borer is shown in Rocanville, Sask., in a 2007 photo. THE CANADIAN PRESS/Troy Fleece

TORONTO - A cloud of uncertainty is hanging over the global potash industry, but demand from developing countries is expected to grow in line with historical trends, a report by TD Bank says.

Potash prices crashed last year after Russian potash company Uralkali said it would no longer export with Belarusian Potash Co., a joint venture with Belarus-based Belaruskali.

TD expects international potash prices to average close to their current level of US$305 to US$320 per tonne over the next two years, but said they will be volatile.

"This forecast is in line with medium-term supply demand fundamentals including the transition to more balanced diets, urbanization and a push to increase crop yields due to less arable land," TD economist Sonya Gulati said.

Belarusian Potash Co. supplied about 42 per cent of the world's potash exports before it broke up and sent prices to a four-year low as major buyers like China and India waited to see how far prices would fall.

Potash Corp. of Saskatchewan (TSX:POT) cut about 18 per cent of its workforce late last year in response to the soft demand.

However China has started to sign potash contacts in recent weeks with a deal with Uralkali and another with Canpotex — the Canadian export partnership that includes PotashCorp, Agrium and Mosaic — at around US$305 per tonne, effectively establishing a price floor.

"Buyers like China for instance were waiting to see how low prices were going to go and the fact that they actually signed those contracts was indicative of the fact that they still had demand," Gulati said.

She noted that uncertainty will persist in the short term.

Prices may be pushed up if there's a reconciliation between Uralkali and Belaruskali, production falls or demand rises more than expected. On the down side, potash buyers could continue to wait in hopes pushing prices lower or producers could add more capacity than anticipated, weighing on prices.