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Russia's Uralkali quits potash cartel
July 31, 2013

The global potash sector was rocked on July 31 when Russia’s Uralkali quit one of the world’s two big potash cartels.

The move is likely to spark a price war for the key crop nutrient and pummel 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, Reuters reported.

“It is as if Saudi Arabia decided to leave OPEC - oil prices would fall immediately,” Dmitry Ryzhkov, equity sales trader at Renaissance Capital, told Reuters.

BPC and Canpotex usually settled for deals at similar prices for the big buyers such as India and China, and together the two accounted for almost 70 percent of global potash sales. That 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.

The move might also halt new potash projects, including BHP Billiton’s Jansen Mine in Western Canada, a $14 billion project with a targeted opening date of 2017. BHP is expected to make a decision on the Jansen project this fiscal year.

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 Mt (2.57 million st). Other projects canceled or delayed include the $6 billion Rio Colorado potash project in Argentina, which Vale quit this year.

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.

The decision to quit BPC may cut the global potash price to below $300/t ($272/st), from the current $400 ($363/st), Uralkali said. Lower fertilizer prices could mean rising demand from price-sensitive farmers in Asia.

Reuters reported that 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 (SDFGn.DE), 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.

The BPC news came days after Uralkali said shareholder Alexander Nesis had sold his 5 percent stake. Uralkali said it would freeze its buyback program due to likely volatility in its stock.

Uralkali, with costs of around $60/t ($54/st), said global prices were likely to be kept above $200/t ($181/st), 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 rumors emerged that both were selling potash outside the partnership. The two firms previously denied those rumors. Uralkali said it pulled out because Belaruskali had made key fertilizer ingredient deliveries outside the partnership.

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