Cartel getting back together - official Not sure this was already posted, but it is certainly encouraging!
Uralkali back in the Belaruskali fold — but can they reverse the price hit potash suffered as a result of the breakup?
Posted on December 30, 2013 by Robin Bromby
We knew it was coming and now it’s official according to a Russian news service RT: Uralkali is going back into business with Belaruskali, its former Belarus partner. This reunited cartel used to — and obviously will soon again — control 40% of the world’s potash trade.
This will be welcome news for all those with an interest in such a reunion — the Belarus and Russian governments and, of course Canpotex — because it offers the prospect that what they no doubt see as “loose cannons” (we know them as new independent producers) will find it harder to crack the power of the big players in the world of potash; it will negate the Indians and Chinese trying to play one side against another to hammer prices down further.
The present (relatively) depressed state of potash prices has been partly blamed on Uralkali busting up the Belarus/Russian potash cartel. But now we will have to wait and see whether this reunion reverses the price trend. On that depends the hopes for new mines (and competitors) getting into the market. Belaruskali/Uralkali and Canpotex will be taking cheer from the fact that, with prices hovering around the $300/tonne mark, life is tougher for any new player trying to get into production. So far as Canpotex is concerned, that would apply to BHP Billiton’s Saskatchewan’s plans; for all the players, it covers any new producer.
However, this may be a temporary reprieve. As I pointed out here recently, there is a only so long the farmers of the developing world can stall their use of potash. Some 80% of China’s arable land is potash-deficient. Since the 2008 financial crisis hit, farmers around the world have ‘mined’ nutrients from the soil. Now they have to put them back if crop yields are to be maintained. The world population is growing, developing countries are seeing diets improve as people can afford better food (China’s meat consumption has tripled since 1990) but the amount of arable land is shrinking due to urbanisation and other factors.
It hasn’t helped that some of the existing players have been prepared to act against the best interests of the industry to score business. One factor that kept a lid on prices in 2012 was the deal two years earlier where China locked in contracts to buy at $350/tonne from Belarusian Potash and at $355/tonne from Israeli Chemicals — deals that were severely criticised at the time by Potash Corporation of Saskatchewan.
News of the Belaruskali/Uralkali kiss-and-make up was broken at a press conference in Minsk by the Russian ambassador to Belarus, that man adding he hoped the joint marketing of potash fertilisers should be restored. As it surely will be: the reconciliation would be pointless unless that was the objective.
It brings to an end five months of high drama in the Belarus/Russia potash world, including the arrest by authorities in Minsk of the then Uralkali chief executive, Vladislav Baumgertner. His plan had been a sound business one (using Uralkali’s very low cost base to go it alone and undercut everyone else) except that it proved not to be politically sound.
But all that has been resolved, as was expected when Russian tycoon Mikhail Prokhorov and a fellow businessman bought the key 47% stake in potash firm Uralkali and brought in a replacement for Baumgetner in the form of Uralkali’s deputy chairman Dmitry Osipov. Belarus president Alexander Lukashenko had demanded the exit of the man who controlled the ruling stake in Uralkali, Suleiman Kerimov; that was a precondition for a revival of the alliance. The problem for Baumgertner was that he had annoyed not just the Belarus government, but his Russian masters as well. You see, Vladimir Putin has his Eurasia dream which is essentially recreating the old Soviet Union in a new, modern and politically acceptable guise. His key allies in this are Belarus and Kazakhstan, and he no doubt wants to keep that base solid and unified while he woos Ukraine and the central Asian republics.
So this has to be seen as being on two levels, Moscow’s political strategy and the struggle for future control of potash supply. Baumgertner put a rather large stick in the spokes of both wheels. The political issue, so far as this issue is concerned, is now resolved for the moment. The long term ability of the Belarus/Russian grouping and Canpotex to keep their dominance is quite another matter.
It is only a matter of time before China, the world’s largest potash importer, puts its foot on more resources around the world. Indian companies have been slow off the mark in this regard, but eventually they, too, will move.
In regard to Russia and Belarus, a third player is emerging in the form of Russia’s EuroChem. It is significant that just recently EuroChem, Russia’s largest mineral fertilizer producer, and China-based potash fertilizer producer Migao Corporation announced a joint venture to produce up to 60,000 tonnes of potassium nitrate and up to 200,000 tonnes a year of chloride-free complex fertilizers (NPK)
Then we have Brazil, the agricultural powerhouse and desperate to develop its own potash resources — it presently has to import ninety per cent of its needs. And then Australia, too, wants to be a player, both at home and abroad.
Meanwhile, the present low prices must be a strain for explorers wanting to raise money or bring in partners. (Of course, the current price range above $300/tonne should be seen in context: between 2000 and 2007, potash producers had to be content with $200/tonne or below.)
In the short term, new projects are going to be delayed. We saw that last week when it was reported from Sydney that the A$264 million bid for Elemental Minerals by a Chinese company was on the brink of collapse. This is due mainly to problems satisfying the rules of the Hong Kong Stock Exchange, but the bottom line is that it means further delays to any progress with the important Sintoukola potash project in the Republic of Congo. While the project is expected to support a long-life, low-cost potash operation, someone has to come up with the $2 billion to make that possible.
- See more at: https://investorintel.com/market-commentary-intel/uralkali-back-belaruskali-fold-low-prices-inhibiting-new-potash-players/#sthash.uqiZJvNf.dpuf