Shares in fertilizer makers plunge on price shock
Russia's Uralkali has dismantled one of the world's largest potash partnerships by pulling out of a venture with its partner in Belarus, a move it expects will cause global prices to plunge by 25 percent.
Shares in key potash producers plunged Tuesday on the news, with Mosaic Co dropping 17 percent among others.
The break-up of the Belarus Potash Company (BPC) leaves North America's Canpotex as the ruling potash export venture. BPC and Canpotex had accounted for 70 percent of global trade in potash, an important ingredient for fertilizer, and the duopoly had set identical prices in key markets such as China and India.
Uralkali said it was pulling out after reaching "deadlock" over sales and would export all potash via its Swiss-based Uralkali Trading.
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"In the near future we expect (global) competition to become stronger - that will push prices down," Baumgertner told reporters in a conference call on Tuesday.
"This decision came as a surprise for us," a top manager of Belaruskali, who asked not to be identified, said.
Belaruskali declined official comment. Uralkali's CEO said the company had informed Belaruskali verbally on Monday and then formally on Tuesday. BPC was not available for immediate comment.
Uralkali plans to boost its potash sales to 13 million tonnes in 2014 and 14 million tons in 2015 from 10.5 million tonnes in 2013, Baumgertner said. The company will try to expand its market share in China, India and Brazil.
The decision may lead to a fall in the global potash price to below $300 per ton in the second half of 2013, from the current $400 per ton, it said. Lower fertilizer prices could result in rising demand from price-sensitive farmers in Asia.
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Shares of Uralkali plunged 15 percent. Rival fertilizer firms also fell, with Germany's K S down nearly 16 percent.
Uralkali and Belarus potash maker Belaruskali were partners for eight years in BPC, which accounts for 43 percent of the global potash export market. Uralkali said it had left the venture because Belaruskali made a number of key fertilizer ingredient deliveries outside the partnership.
The break-up of the venture means Belaruskali can now sell its potash at a discount, said Dmitry Ryzhkov, equity sales trader at Renaissance Capital.
"It is as if Saudi Arabia decided to leave OPEC—oil prices would fall immediately," Ryzhkov said.
The duopoly had also been threatened by miner BHP Billiton's plans for an 8-million-tonne-per-year mine in western Canada, which would be the world's largest potash mine if it opens as scheduled in 2017.
Potash enhances water retention of plants, and increases crop yields.
Uralkali chief executive Vladislav Baumgertner said in a statement the partners had reached an unfortunate "deadlock."
The company will now focus on increasing sales.
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It has concluded an option agreement with CNAMPGC, a major Chinese fertiliser importer, on potash supply, Uralkali said. This would aim to supply 500,000 tons of potash to China by the end of 2013.
Uralkali said it hopes that increase in sales volumes would compensate for the expected fall in the potash price, allowing it to keep its current dividend policy.
The company expects its shares and those of other producers to be volatile in the near future and has decided to freeze its current buy-back programme, the CEO added.
Russia's Moscow Exchange suspended trading in shares of Uralkali on Tuesday, after the stock price fell by more than 20 percent. Shares were down by 24 percent after trading resumed.