Will the Russian potash cartel re-form? Will the Russian potash cartel re-form?
Peter Koven | 13/08/07 | Last Updated: 13/08/07 11:43 AM ET
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The potash business has been in a state of utter chaos since last week when OAO Uralkali announced plans to
collapse a trading group and start producing at full capacity. The move signalled the potential end of the price-over-volume strategy that potash firms have favoured for decades.
But is the marketing partnership between Uralkali and Belaruskali really gone for good? Analysts are not convinced, especially after Uralkali’s chief executive said he would be open to a reconciliation on a “mutually beneficial basis.” That would presumably involve a commitment from Belarusakli to stop selling product on its own.
Scotiabank analyst Ben Isaacson put the odds at 40% that the two firms will forge a new partnership before 2015. That said, he does not think Uralkali is posturing with its move to break up the trading group and seize more market share. He believes the company will continue down this path until it no longer has to, even if there is no economic rationale for it.
“In other words, it’s true that volume over price is [Uralkali's] real new strategy,” he said in a note. “However, by its own admission, this is not the strategy that [Uralkali] wants, and therefore, we believe it will give it up quickly should [Belaruskali] agree to honour a new partnership agreement.”
With so much uncertainty about the future direction of prices, he recommends investors stay away from high-cost producers such as Intrepid Potash Inc. and K+S AG. He also put the junior companies in his coverage under review until there is some sense of whether their projects are viable.
For now, he is assuming a drop in realized potash prices of US$80 per tonne through the end of 2014.
https://business.financialpost.com/2013/08/07/will-the-russian-potash-cartel-reform/