Potash shares plunge after BPC cartel splinters


Shares in potash producers slumped after Uralkali broke up one of the world's two marketing cartels for the nutrient, forecasting that the move would prompt a plunge in prices to levels not seen since 2008.

Shares in Russia-based Uralkli tumbled to their lowest since 2010, with shares in israel's ICL falling to levels not seen since 2009, and in German rival K+S   to their lowest in nearly six years.

In New York, Mosaic stock plunged 25% in opening deals, and in Toronto PotashCorp shares plunged 23% although shares in Agrium, which also owns substantial farm retail operators, held up relatively well, falling 8.3%.

Intrepid Potash shares, floated in 2008, touched an all-time low.

The drops followed Uralkali's forecast that potash prices, currently at about $400 a tonne, could tumble below $300 a tonne in the second half of 2013, after it quit the Belarus Potash Company cartel it operated for eight years with Belarus-based Belaruskali, and which accounted for 43% of world potash exports.

"We see the potash price may fall below $300 a tonne after the change in our trading policy," Vladislav Baumgertner, the Uralkali chief executive, said.

'Unacceptable actions'

The collapse of BPC crystallises a deterioration in relations between Belarusian and Russian sides which in May led to a highly-publicised meeting between Alexander Lukashenko, the Belarusian president, and Suleyman Kerimov, Uralkili's top shareholder.

Potash group share prices at Tuesday's close

Agrium: Can$89.15, -5.1%, (Toronto)

PotashCorp: Can$32.66, -16.0%, (Toronto)

SQM: $30.76, -17.1%, (New York)

ICL: 29.26 shekels, -17.8% (Tel Aviv)

Mosaic: $43.81, -17.3%, (New York)

Uralkali: 151.75 roubles, -18.9%, (Moscow)

K+S: 20.24, -24%, (Frankfurt)

Intrepid Potash: $13.89, -29%, (New York)
The dispute has centred around Belarusian sales of potash outside of BPC, which Mr Lukashenko enabled by a presidential decree in December stripping the cartel of its monopoly.

Mr Baumgertner said on Tuesday: "It has always been Uralkali's position that export activities of both producers should go through the unified sales network.

"Belaruskali has made a number of deliveries outside BPC.

"We have repeatedly informed our Belarusian partners that such actions were unacceptable and they have ultimately destroyed the fundamentals of our prolonged fruitful co-operation."

Reconciliation possible?

Uralkali will now direct its sales though its own Swiss-based trading business, and indeed on Tuesday separately announced an agreement to supply an optional 500,000 tonnes extra to CNAMPGC, the Chinese importer, in the second half of this year.

Chinese potash import deals are particularly closely watched by the market because of its status as the top importer, whose terms set benchmarks for other buyers.

However, Mr Baumgertner held out the potential for renewed deal with BPC, saying that "we do not exclude the possibility of co-operation on a mutually beneficial basis in future".

Even last month, Uralkali had flagged the appeal of the cartel, with finance director Viktor Belyakov, saying that it was "very important for our price-over-volume strategy.

"We think that the Russian potash company has a very stable structure, and we'll do our best in order to keep it," he told investors.

Price discipline

BPC's collapse is seen as negative for potash values by severely undermining the price discipline which has held values well above production costs, underpinning profits at producers.

The market retains the North American Canpotex consortium, of Agrium, Mosaic and PotashCorp, although this cartel itself has come under fire from BHP Billiton, the mining giant which is planning the world's biggest potash mine in Canada.

Lower potash prices, which in 2008 soared from $300 a tonne to record highs close to $900 a tonne, would raise question marks over the financial viability of many new potash sites.

'Significant irritation'

Uralkali's forecast of the potential for potash prices to fall below $300 a tonne prompted an angry response from Germany's K+S, which said that the forecast "caused significant irritation".

"The prices for potash fertilizers spread in the media are not understandable for us and, from our point of view, do not reflect the current supply and demand situation," said the group, which is developing a greenfield potash mine in Canada .

"The positive medium- and long-term trends for potash fertilizers remain unchanged."

Broker reaction

However, many brokers cut forecasts for potash companies, including Cantor Fitzgerald, which lowered to "hold", from "buy", its rating on PotashCorp shares, lowering its price target to $36 from $46.

AltaCorp lowered to "underperform", from "perform", its rating on PotashCorp shares, and slashed its target price for the New York-listed stock to $30.00 from $42.00.

"With the Russian cartel officially broken, we expect all the potash names will sell off hard," the broker said.

"With PotashCorp being one of the most exposed and visible potash players, we suspect a potentially greater decline."