MOSCOW, July 30 (Reuters) - Russia's Uralkali
quit one of the world's two big potash cartels on
Tuesday, heralding a price war for the key crop nutrient and
pummelling the shares of companies that produce it.
The break-up of the Belarusian Potash Company (BPC), a joint
venture with Belarussian partner Belaruskali, leaves North
America's Canpotex as the dominant potash export venture.
It could lead to cancellations of projects by rivals as the
industry weighs the effect of lower prices, but may bring better
deals for farmers.
"It is as if Saudi Arabia decided to leave OPEC - oil prices
would fall immediately," said Dmitry Ryzhkov, equity sales
trader at Renaissance Capital.
In negotiations with big buyers like India and China, BPC
and Canpotex usually settled for deals at similar prices, and
they had no qualms about turning off the supply spigot when the
buyers looked likely to gain the upper hand. Together the two
accounted for almost 70 percent of global potash sales.
That clubby system is now under threat after a falling out
between BPC's members. Uralkali promised to bolster production
and sales, even as potash prices are already in decline.
U.S.-listed shares of the Canpotex owners - Potash Corp of
Saskatchewan, Mosaic Co and Agrium Inc -
plummeted, cutting their market value by nearly $12 billion by
In the last few years, BPC and Canpotex raised potash prices
well above their production cost, a senior official at a major
Indian potash firm said, asking not to be identified because of
the sensitivity of the matter.
"It hurt Indian companies, Indian farmers and the Indian
government," the official said. "The break-up will limit their
power ... Certainly this will bring down potash prices."
Uralkali is pulling out of the venture after reaching
"deadlock" over sales and will export potash via its Swiss-based
Uralkali Trading, chief executive Vladislav Baumgertner said.
"In the near future we expect (global) competition to become
stronger - that will push prices down," Baumgertner said.
The decision to quit BPC may cut the global potash price to
below $300 per tonne in the second half of 2013, from the
current $400, Uralkali said. Lower fertilizer prices could mean
rising demand from price-sensitive farmers in Asia.
Shares of Uralkali, part-owned by tycoon Suleiman Kerimov,
plunged 19 percent, prompting the Moscow bourse to suspend
trading in the stock.
Shares of Germany's K+S, a rival fertilizer firm,
sank by 24 percent to a six-year low.
Potash Corp shares fell 19 percent, while Mosaic and Agrium
lost 18 and 5 percent respectively. Agrium's fall was less steep
as it is more focused on nitrogen production than potash.
Farmers would be big winners from a drop in potash prices,
although grain prices are also key to their profits, said
Charles Neivert, analyst at Cowen Securities.
"You've got the Brazilian season coming up and (farmers) are
licking their chops on this one."
Uralkali will now look to boost sales to retain its dividend
policy. It plans to boost potash sales to 13 million tonnes in
2014 and 14 million tonnes in 2015 from 10.5 million tonnes this
year by expanding market share in China, India and Brazil.
It plans to export more than 2.5 million tonnes to China
this year, up from 2 million in 2012.
However, it will be harder to win business in India as
companies there have already signed import deals for 4 million
tonnes, said a senior official at state-run Rashtriya Chemicals
and Fertilizers Ltd, declining to be named.
A new emphasis on volume by Uralkali may force Canpotex to
consider the same strategy, instead of carefully matching
production levels to demand.
The second-biggest Canpotex producer, Mosaic, said on Tuesday
that it's too soon to change course, and it doesn't see Canpotex
"It seems there's a feud underway between Uralkali and
Belaruskali and the rest of the industry's caught up," said
Mosaic Chief Financial Officer Larry Stranghoener. "We're still
trying to sort out what Uralkali intends to do, which may be
different from what it says it will do."
The price fall could cause new potash projects to be delayed
or cancelled, Raffeisenbank analyst Konstantin Yuminov said.
Miner BHP Billiton plans the world's
largest potash mine in Western Canada, with a 2017 opening date
for the $14 billion Jansen mine.
BHP is expected to take a decision on the Jansen project
this fiscal year. Rival industry executives have questioned the
project's profitability at current price levels.
BHP declined to comment on the impact of Uralkali's move.
Uralkali said it would delay its Polovodovsky mine, which
would cost an estimated $2.4 billion to build and increase its
capacity by 2.5 million tonnes. Other projects cancelled or
delayed include the $6 billion Rio Colorado potash project in
Argentina, which Brazilian miner Vale quit this year.
The BPC news came days after Uralkali said shareholder
Alexander Nesis had sold his 5 percent stake. Uralkali said it
would freeze its buyback programme due to likely volatility in
Uralkali, with costs of around $60 per tonne, said global
prices were likely to be kept above $200 per tonne, supported by
European and North American operators that have higher costs.
Potash is the main export product for Belarus, Russia's
staunchest ally among the former Soviet republics whose economy
is stagnating after a financial crisis in 2011.
Belaruskali was a partner to Uralkali for eight years in
BPC, which once held 43 percent of the global potash export
market. Uralkali was at one point rumoured to be interested in
buying a stake in Belaruskali - which now looks unlikely.
Their joint venture started to crumble this year as rumours
emerged that both were selling potash outside the partnership.
The two firms previously denied those rumours.
Uralkali said it pulled out because Belaruskali had made key
fertilizer ingredient deliveries outside the partnership.
The decision came as a surprise for Belaruskali, said a top
manager who asked not to be identified. According to Uralkali's
CEO, the company had informed Belaruskali verbally on Monday and
then formally on Tuesday. Belaruskali and BPC did not comment.