Belarus Announces Potash Contract with China, China Claims

UNCLAS SECTION 01 OF 02 MINSK 000820

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SENSITIVE

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DEPT PASS TO USTR

E.O. 12958: N/A
TAGS: ECON EMIN ETRD EAGR USTR BO
SUBJECT: Belarus Announces Potash Contract with China, China Claims
Otherwise

Refs: A) Minsk 458 B) Minsk 652

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Summary
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1. (U) Despite recent claims from the GOB that Belarus has signed a
contract to supply potash to China, it remains unclear whether
China and Belarus have reached an agreement. China is Belarus'
largest buyer of potash, and the lack of a contract has caused
Belarus' overall potash exports to drop by almost 43 percent in the
first half of the year. Belarus' potash exporter issued a
statement on July 28 indicating that China agreed to a price
increase of USD 25 per ton, but the Chinese embassy confirmed for
Poloff that negotiations are still ongoing. Regardless of the
existence of a contract, it seems unlikely that Belarus will meet
its production and export quotas for 2006, though GOB officials
remain optimistic. End Summary.

Conflicting Reports on the Contract
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2. (U) After almost a year-long delay, Deputy Prime Minister
Vladimir Semashko announced on July 25 that Belarus had signed a
contract to supply 1.7 million tons of potash fertilizers to China,
an almost 25 percent increase from the 1.285 million tons China
imported from Belarus in 2005. According to Semashko, for the next
five months Belaruskaly, the state owned company that mines all
Belarusian potash, will supply 300 thousand tons of potash per
month to China and Uralkaly will provide a one-time shipment of 200
thousand tons.


3. (SBU) In contrast to Semashko's announcement, Chinese Economic
and Commercial Counselor Zhang Delu on August 1 denied the
existence of a contract and told Poloff negotiations were still
ongoing. Zhang appeared optimistic that a contract would be signed
in the near future, noting the urgency of delivering the majority
of the potash fertilizer to Chinese ports before the onset of
winter.

Price Remains The Sticking Point
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4. (SBU) Extended contract negotiations resulted from the two
countries' inability to agree on a price (ref A). Belarus wanted
the price to increase from USD 165 to USD 205 per ton, whereas
China wanted a USD 20 reduction. On July 25, Semashko stated that
the terms of the contract were "acceptable to Belarus" but did not
state a price. On July 28, Belarusian Potassium Company (BPC),the
only exporter of Belarusian potassium fertilizers, announced that
it had reached an agreement with Chinese buyers Cnampgc and
Sinochem to increase the sale price of potash by USD 25 per ton.
Independent media sources cited prices ranging from USD 185 to USD
190, but Zhang told Poloff that an exact amount had not been
determined because delivery and shipping costs needed to be
incorporated into the price. Zhang stated that the final price
would most likely be lower than the reported USD 190 since "poor
Chinese farmers cannot afford such a high price."

Can Belarus Still Meet Production and Export Quotas?
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5. (U) On July 25, Semashko promised that Belarus' export targets
would be met despite the delay in contract negotiations. According
to independent journalist Roman Yakolevsky, the GOB set Belarus'
potash export quota at 4.26 million tons for 2006. Yakolevsky
predicted that Belarus' potash exports would only reach 3.6-3.9
million tons unless Belarus finds another major importer.
According to the Ministry of Statistics and Analysis, export of
potash fertilizers had fallen 25 percent year-on-year in the first
four months of 2006. Independent news agency Prime Tass reported
that the absence of a contract caused Belarusian potash exports to
China to drop 86 percent to 72,000 tons from January to May 2006,
and overall potash exports dropped almost 43 percent during the
same time period.


6. (U) It appears unlikely that Belarus would produce the
necessary supplies to meet the high GOB export quotas. The
Ministry of Statistics and Analysis reported that output in May
2006 was almost 50 percent less than May 2005. All four

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Belaruskaly potash mines were closed in June for "unscheduled
maintenance" (ref B) and Nikolai Novik, chairman of the independent
trade union at Belaruskaly, told Yakolevsky that he doubts that the
mines will be able to meet the production target this year.

Comment
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7. (SBU) Despite GOB assurances, it is unclear whether a contract
has been signed between China and Belarus on potash. The Chinese
embassy could be out of the loop or reluctant to share such
information with us, but BPC representatives on August 1 also
refused to confirm for Emboff the existence of a contract, thus
lending some credibility to the Chinese allegations that
negotiations are still ongoing.

MOORE