By Theo van de Kletersteeg
Russia’s Uralkali has pulled out of its export partnership with Belaruskali, a move that has sent shockwaves through global fertilizer markets. Belarus Potash Company (BPC), the partnership between Uralkali and Belaruskali, was thought to account for some 40 per cent of the global potash trade. The breakup leaves Canada’s Canpotex, a partnership of Potash Corporation of Saskatchewan, Agrium and The Mosaic Company, as the world’s largest potash exporter. Canpotex is estimated to be responsible for about 30 per cent of the global potash trade.
Potash represents a global market of about 55 million tonnes annually. Potash Corp. is the largest individual producer worldwide, followed closely by Uralkali, Belaruskali and Mosaic. In 2011, producers in Russia and Belarus accounted for global sales of 17 million tonnes, whereas Canadian producers accounted for 13.5 million tonnes. Global production capacity is slated for significant expansion as Potash Corp., Uralkali and Mosaic have significant potash production expansion projects under way, as do other miners. For example, BHP Billiton continues to work on its $14 billion Jansen, Saskatchewan, project to create the world’s largest potash mine, which is scheduled to open in 2016/17 and have a peak production capacity of 8 million tonnes per annum.
In a conference call, Uralkali CEO Vladislav Baumgertner told reporters that he expected global competition to intensify which would “push prices down”. Baumgertner said that it is Uralkali’s intention to increase estimated 2013 sales of 10.5 million tonnes to 13 million tonnes in 2014, and 14 million tonnes in 2015, which clearly implies that the company intends to seek an increased share of the global market.
It is widely expected that Uralkali’s decision will lead to significant reductions in potash prices which will have negative implications for Canadian and international potash producers in terms of planned capacity expansions and profitability. Prior to the news of the breakup of this Joint Venture, Potash Corporation of Saskatchewan, the world’s largest potash producer, reported on July 25 that “due to competitive pressures” the average price of potash received in its second quarter of 2013 of $356/tonne was $77/tonne below the average price received during the second quarter of 2012. Some analysts believe that prices may drop further by as much as $100/tonne.
While these developments represent good news to farmers, particularly in areas of the world served by all of the major producers, the news represents bad news to potash producers in Canada, specifically in Saskatchewan and New Brunswick. Depending on the extent of the expected price fall, and its duration, producers may tighten their belts and delay and/or cancel mine development or expansion projects. Also, junior potash development companies will find it much harder and more costly to raise capital. The flip side of this coin is that established producers with surplus production capacity may benefit from increased demand as farmers are expected to buy more fertilizer.
Stock markets were rattled by the news, and the shares of producers were pummelled. At the close of business on July 30, shares of Potash Corporation last sold at $32.66, a drop of $6.24 (16.04 per cent), establishing a new 52-week low of $29.78 during the day. Shares of Mosaic were down 17.28 per cent, while shares of Agrium were down 4.69 per cent.