TORONTO (miningweekly.com) – The $350/t price settlement for potash reached between Russia's Belorussian Potash Company (BPC) and Chinese buyers is too low, and it would be “a mistake” for North American producers to agree to the same price, Potash Corporation of Saskatchewan CEO Bill Doyle said on Thursday.

BPC will likely "come to regret" the agreement later in the year, he said.

Potash Corp, Mosaic Co and Agrium Inc jointly market their potash production through export arm Canpotex, which is still negotiating annual pricing for the crop nutrient with China.

The next meeting between Chinese buyers and Canpotex is scheduled for next week, Doyle said.

The low BPC settlement price, which was followed with a similar deal by Israeli Chemicals, came as a “surprise”, as it is below market and does not reflect the North American producers' expectations for a recovery in demand this year, he told analysts and investors on a conference call.

“To tie in at this pricing level for the whole year would have been a mistake,” he said.

“I think those settlements will go down as the absolute low point.”

Canpotex is also pushing for a shift to quarterly, rather than yearly, price settlements with Chinese buyers, and expects to make the change as early as this year, Doyle said.

Although the Chinese price negotiations could drag into the second half of this year, Doyle said he expects that a differing view of the market with Chinese buyers will be “short term” in nature.

“Chinese potash consumption will start to recover this year, and it will grow considerably in 2011 and beyond. “China will be at least 75%-dependent on imports of potash going forward and it will need our new capacity to fill their needs in the not-too-distant future,” he added.

“China is going to need us and we are going to need them.”

Doyle said he also expects to see the Indian market move to a quarterly price settlement.

Indian farmers and politicians are under pressure to ensure a good crop this year, which means the Indian settlements will likely be reached sooner than late, he said.

Prices and demand for potash, which is one of three essential crop nutrients, soared in 2007 and the first three quarters of 2008, with some shipments selling for as high as $1 000/t on the spot market.

However, farmers around the world responded to the financial crisis by deferring the use of fertiliser and Potash Corp and the other handful of global producers have been hit hard.

Doyle said he expects 2010 will be a “transition year”, between the weak market conditions of 2009 and renewed demand growth in 2011 and beyond.

However, he reiterated that Potash Corp will continue match its output levels with global demand, which means that some production will remain curtailed this year.

'CANNOT BE JUSTIFIED'

Doyle was characteristically scathing in his remarks about large diversified miners BHP Billiton and Vale's moves to gain a large foothold in the potash sector.

It has been more than three decades since a new potash mine started production in Canada and, while Potash Corp continues to invest in brownfields projects, which Doyle said remain economic at current prices, he does not believe that market conditions are strong enough to warrant the construction of new operations.

“It's pretty clear that a greenfield mine cannot be justified by anyone at the current time. Heck, current prices barely justify brownfield expansions,” he commented.

“BHP does not walk on water. They have to go through the same high capital expenditure, time-consuming route that we would to bring on a greenfield property.”

BHP Billiton, which announced on Thursday it will acquire junior Athabasca Potash, has said it plans to make an investment decision in 2011 for its own eight-million-ton-a-year Jansen project, in Saskatchewan.

But Doyle said he thinks it is unlikely the Anglo-Australian miner is basing its potash strategy on greenfield projects.

BHP is still likely looking at acquiring an existing producer if it wants to become a major player in the market, he suggested.

“And I'm fully confident that we are able to compete with them, or anyone else that may want to enter the space.

“No one should take us for granted,” Doyle continued.

“We can be very tough when we need to be.”

Shares in Potash Corp, which reported a 69% decline in fourth-quarter profit on Thursday, fell 4,56% by 15:56 in Toronto.

The stock traded as low as C$107,18 earlier in the day.