Potash Corp. (NYSE:POT) shares were on the rise lately on news that Russian Uralkali was looking to restart negotiations with Belarussian Belaruskali. As a reminder, the big downside in potash market started with the breakup between Uralkali and Belaruskali back in 2013. Uralkali decided to pursue strategy of "volume over price", which distorted the market and put pressure on all industry participants. Neither the potash market itself nor shares of potash producers including Potash Corp., Uralkali, Mosaic (NYSE:MOS) or Agrium (NYSE:AGU) have recovered since then.
Rumors of potential cooperation between Uralkali and Belaruskali have appeared ever since the breakup in 2013. So far, nothing serious materialized. For example, in October 2016 Russian business newspaper "Vedomosti" reported (link in Russian) (translation) that Uralkali approached Belaruskali with offers of cooperation several times but Belaruskali was not interested. This time, Uralkali's offer will be strengthened (link in Russian) (translation) by the presence of Sberbank's CEO German Gref during negotiations. Mr. Gref increases the political weight of the delegation and makes a successful reunion a bit more likely.
There are two main questions in this story. The first one is whether Uralkali and Belaruskali will be able to reach a consensus and restart cooperation. It's anybody's guess at this point but your author is cautiously optimistic. Both companies had the time to see that the strategy to increase market share did not work. Frankly, for Uralkali the market share game was over with the accident at Solikamsk-2 which made rapid production expansion plans impossible. In my view, there is a good rationale for the deal between Uralkali and Belaruskali, so everything will depend on negotiators' will to reach a mutually beneficial agreement.
The second question is even more important - will the deal help the potash market? Much damage has already been done. I believe that we've seen the bottom for potash prices and recent quarterly reports of potash producers confirm that a cautious uptrend may already be in place. However, the industry has big reserves to increase production, so strict discipline among main players will be necessary to improve the situation with pricing.
Vladamir Zernov, Seeking Alpha.