Friday, August 09, 2013

Potash Prices Implode - Will It Mean Cheaper Potash Fertilisers?

The world of potash is in a free fall mode after the price recently imploded due to a cartel breakup.

At the end of July, Uralkali pulled out of the Belarus Potash Corporation (BPC) export cartel that controlled about 45% of the global potash market. Uralkali asserted that Belaruskali, it's partner in BPC, had been selling outside of the cartel. This is almost certainly true, however, it appears to be minor in scale.
The result has been a massive sell-off in US stock market listed potash fertiliser companies, including Potash, Mosaic and Agrium, as well as, international companies such as K+S in Germany, Uralkali and Belaruskali.

Recently it has been learned that two Russian billionaires sold out of their shares of Uralkali ahead of the decision to pull out of the joint trading venture BPC. This is a major red flag. It is clear they must have known this decision was coming. Zelimkhan Mutsoev and Alexander Nesis both sold off billion dollar plus positions in Uralkali.  Insider trading?  - usually frowned upon! 
Interestingly, a different Russian billionaire Suleiman Kerimov has maintained his stake, but sees Uralkali as a long-term play. He certainly must be involved in the decision by the company to back out of the cartel. What is his strategy?

The company already has said it will ramp up production and increase sales to China, India and Brazil. They will add about 3.5 million tons of output by 2015. Uralkali can do this because they have the lowest cost of production near $80 per ton.
What are Uralkali's true motives? The second thing, the one we are meant to see, is to keep competitors out of their market. BHP has been planning to build the world's largest potash mine in the world in western Canada. They have been able to consider building this facility largely because of the artificially high potash prices created by BPC and Canpotex - the Canadian cartel made up of Potash (54% ownership), Mosaic (37%) and Agrium (9%).

potash mining in Ural mountains

What Uralkali is doing is certainly predatory pricing by a big player. If successful they will keep BHP out of the market for a while and kill some higher cost producers. We'll see later this year the impact as BHP is making decisions about the mine soon.
But there's more, and information coming from Russia may be not always true.

Will we see lower potash and potash mix fertiliser products here in Australia anytime soon?  Do not hold your breath.............but it would be a boost if we did!

See more here -

and here -

and here too -

The focus has been on the financial markets so far, without much comment related to potash use in agriculture at lower prices.  One would have to think with reasonable prices for many ag products and even for horticulture and dairy products that demand would improve, which would suit lower cost producers, especially Uralkali, a very low cost producer.


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