Negotiates price 26% lower than offer from a 5-producer consortium.
India has managed to create ripples in the global commodities market with countries like the US and China set to follow its benchmark price for potash, a fertiliser widely used in the country. Breaking a well-entrenched global cartel, government-owned Indian Potash Ltd has managed to negotiate a potash deal with Russian company Silvinit at $460 a tonne, which is about 26 per cent lower than what was being offered by a group of five producers and about 37 per cent lower than current spot market prices.
What did the trick was hard bargaining by India, in which it set its own terms, since the country’s consumption constitutes 30 per cent of the global potash market.
The potash deal, which was closed last week, set neighbouring Sri Lanka rethinking on a tender it had floated and prompted it to put purchases on hold. A weekly potash market report said the deal caused jaws to drop, especially those of other suppliers, who, according to Fertiliser Secretary Atul Chaturvedi, will now start falling in line.
The deal with Silvinit is for 850,000 tonne, but if India manages to bring down the price for its entire procurement of 3.5 million tonne, it translates to about 10 per cent saving in its subsidy bill of nearly Rs 50,000 crore for the current year (see chart). India imports its entire potash requirement. “The $460 a tonne is a global benchmark now,” said Chaturvedi. The farmers pay only around $95 a tonne for Muriate of Potash (MoP).
Fertiliser companies that use potash may not directly benefit since the gap in import and retail price is made up through subsidy but they too have welcomed it. “This is a very heartening development. The cartel had played havoc with India’s fertiliser subsidy, which more than doubled last year. Prices have now come down to very reasonable levels,” said R S Nanda, director and chief operating officer, Nagarjuna Fertilisers and Chemicals.
The purchases are usually made for supply starting April and lasting one year but Chaturvedi said they managed to hold on for three months on the strength of just-in-time purchases made in March at the rate of $625 a tonne. “The supply of potash to India would have been delayed for an indefinite period and possibly suspended because the subsidy paid by the Indian government to buyers of potash is much greater than the subsidy paid for other fertilisers,” said IPC, the marketing agent for Silvinit, in an announcement after the deal.
Spot market prices were hovering around $735 a tonne this year with producers cutting production to bring down the stock levels with buyers. The main potash producing countries are Canada, Belarus, Jordan, Israel and Russia.
IPL had closed a tender at $625 a tonne earlier but wanted to renegotiation. The price was considered a good price since customers from Japan, Korea and Taiwan had shortly before agreed to a price slightly above $700 with another company Canpotex.
Russian company Uralkali, controlled by billionaire Dmitry Rybolovlev, more than doubled contract prices to India last year. Belarusian Potash agreed to sell 750,000 tonnes to India’s India Potash Ltd at $625 a tonne for a year through to March 2009.
Source : Business Standard