Uralkali will sell potash to China at a 24% discount on last year's price

One of the world's biggest potash producers, Russia's Uralkali (MCX:URKA), has struck a deal with Chinese companies for sales during the first six months of 2014: $305 per tonne. In other words, a near-25% discount on the price paid in the first half of 2013.

"The contracts between Uralkali and the Chinese companies clearly testify to growing demand and the beginning of market recovery," Oleg Petrov, Uralkali director for sales and marketing said in a statement. "The terms of the agreement with our Chinese partners are mutually beneficial and serve the interests of our consumers, agricultural producers of the PRC.”

The discount comes after a major slump in potash prices over the past year due to Uralkali's break away from its joint venture with Belaruskali in July. Under the Belarusian Potash Company, the companies controlled roughly 43% of global exports. Uralkali producers about 20% of the world's potash.

The Chinese buying consortium headed by CNAMPGC, one of the major Chinese agrochemical corporations, has agreed to buy 700,000 tonnes of the crop nutrient by the end of June. Last January the Belarusian Potash Company agreed to sell the same volume but for $400 per tonne.

A senior source at one of the global potash producers told Reuters that he's "not sure if this is good news or bad news because this price is not very different from the current reality," though he added that "it will create a benchmark that could spark momentum."

"The current physical demand is not bad and the new price could put prices in proportion."

Uralkali's deal with China isn't too far off from what other potash producers have been selling their product at over the past six months. Mosaic's potash was selling at an average of $342 per tonne in the third quarter of 2013. Meanwhile, PotashCorp sold for an average of $307 per tonne in the same period. Shortly after Belaruskali and Uralkali split, the Russian potash producer warned that prices could fall below $300 per tonne.

In November, Belarus' economic ministry said the country would cut the price of its potash exports to $300 per tonne. But there's been talk lately of a reconciliation between the former partners. John Chu, an analyst at AltaCorp, recently told Potash Investing News that a reunion of Uralkali and Belaruskali would support prices.