TSX Commentary

In an interview to Reuters, the Belarusian Potash Company (BPC) indicated that contract negotiations will take place with Chinese potash buyers next week and a contract could be in place by the end of the year. BPC indicated that Chinese inventories had fallen to ~3 million tonnes and there was a shortage of certain products in China. BPC also suggested that it views the Chinese contract as extremely important for a recovery of demand in 2010. BPC did not provide a specific price target for the new contract price but did indicate that it could be lower than the current global spot price. BPC also confirmed that it was currently selling potash in Brazil at $400/tonne. RBC CM is leaving its financial forecasts unchanged pending the announcement of the Chinese contract price. Based on BPC’s commentary, RBC CM believes a 2010 Chinese contract price of ~$350/tonne FOB Vancouver could be reasonable, which would be about $40/tonne lower than its current assumption. The financial impact of a lower-than-forecast Chinese contract price could be partially mitigated by a strong recovery in demand in H1/10, particularly if it leads to a rebound in global spot pricing levels. BPC may seek to settle future deals with China on a spot basis, instead of annual contracts, starting in 2011. Such a move could be positive for global potash producers from a market stability standpoint.