Potash prices dive in 2012 on faltering demand from Asian farms

Potash prices plunged over 10% last year as farmers in China and India sought alternative fertilizer sources and refrained from any major plays on the market.

The Financial Times (paywall) reports that while a 10-fold leap in potash prices following the global food crisis in 2007-08 spurred investment in producers, it also compelled the agricultural industry to find alternatives to the commonplace fertilizers.

Main buyers China and India refrained from major purchases in the second half of 2012, leading to a 10% year-on-year dive in spot prices.

Prices also took a hit from a harder negotiating stance on the part of the Chinese, as well as sharp reductions in government subsidies and a soft rupee in India.

The industry now hopes that demand will gain in 2013 on the lower contract price agreed upon between Canada's Canpotex, the world's biggest potash exporter, and Sinofert (SEHK:297), China's biggest fertilizer enterprise, and that volume sales will compensate for softer price levels.

The price decline will nonetheless have a negative impact upon new entrants who rushed onto the field when potash was riding high, particularly given predictions of an over 40% rise in production capacity during the next several years.