The Globe and Mail is Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous influence on Canada’s political and business elite.
The dramatic breakup of the world’s largest potash oligopoly promises to reshape the industry and send prices tumbling, threatening the profit-making power of the marketing group that sells Saskatchewan potash to global customers.
Russia’s Uralkali said it is walking away from its Belarus Potash Company (BPC) joint venture with partner Belaruskali in order to sell potash on its own to hungry markets in China and India. The move is expected to shatter the industry’s supply-demand picture and spur a global potash price war.
It’s also a serious blow for Canpotex Ltd., the potash marketing group made up of Potash Corp. of Saskatchewan Inc., Mosaic Co. and Agrium Inc. The shares of all three companies were hit hard; combined, they lost nearly $9-billion in stock-market value. Potash Corp., one of Canada’s biggest mining companies, fell 16 per cent to $32.66. Analysts warn Canpotex’s pricing leverage could soon disappear, clobbering profits for each public company.
“This is a game-changer,” said John Chu, an analyst at Alta-Corp. Capital Inc. “This seriously undermines what Canpotex and BPC have been doing. … The valuation premium that potash players typically enjoyed because of the leverage they had between the two groups dissipates if not disappears completely.”
BPC and Canpotex account for more than two-thirds of global potash sales, with about 43 and 25-per-cent shares, respectively, according to recent estimates.
The two groups are often referred to as cartels because they have the power to negotiate similar prices with large buyers such as China and India, and to increase or decrease the supply of the crop nutrient to match demand and help steer prices.
That system could fall apart after a split between the members of BPC, with Uralkali claiming Belaruskali was making sales outside of its agreement. Uralkali said its Belarusian partner “destroyed the fundamentals of our prolonged fruitful cooperation.” Vowing to increase production, Uralkali warned global potash prices could fall 25 per cent as a result, to under $300 a tonne by the end of the year.
That has consequences for Canpotex’s ability to keep up its own pricing and could force changes to production levels.
“Canpotex is going to find it difficult to go it alone with only a 25-per-cent share of the export market,” Mr. Chu said.
Potash producers have already pulled back on production to meet a drop in demand. Potash Corp. said recently it plans to operate its Cory, Lanigan and Rocanville operations at reduced rates for the rest of year, while Mosaic has also curtailed production.
For the rest of this article, click here: http://www.theglobeandmail.com/report-on-business/russias-potash-breakup-a-game-changer-for-canadian-industry/article13517575/#dashboard/follows/