MINNEAPOLIS — On Tuesday the fertilizer hit the fan.
Share prices of nutrient companies were demolished as investors reacted to news that a big Russian fertilizer company would stop cooperating in a pricing cartel. The move is likely to slash prices for the fertilizer potash. Investors worried that it will slash profits for potash companies, too.
Mosaic Co. saw its shares fall almost 25 percent before recovering slightly. Potash of Saskatchewan was down 23 percent. The declines wiped more than $13 billion from the stock-market values of six large publicly traded potash companies.
Potash is a major fertilizer, used by farmers worldwide. It has been selling for almost $400 per ton. Some analysts think the price could fall below $300 now.
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Belarusian Potash sells potash made by JSC Belaruskali and Russian mining company Uralkali. The two of them accounted for some 26 percent of the world’s potash trade this year, according to Citi. The effect was that two of the world’s largest potash suppliers controlled enough of the market to have a significant influence on prices.
That’s all changing now. Instead of limiting production and keeping prices higher, Uralkali says it will max out its production and sell at spot prices.
“Uralkali has started a price war,” Citi analyst Andrew Benson wrote. The company is talking about selling potash for $300 per ton, he wrote, which “could lead to a significant upturn in demand in 2014.” In the meantime, though, the changes “imply a substantially poorer profit outlook” for the rest of this year and 2014 than investors had previously expected, he wrote.
“Uralkali’s announcement completely turns the global potash market upside down,” said Elena Sakhnova, a VTB Capital analyst in Moscow. “If previously global potash producers were acting like an oligopoly, working with the rule that benefited higher potash prices over shipped volumes, now the market will be fully competitive.”
Uralkali’s venture with Belarus, and a group comprising Potash of Saskatchewan, Mosaic and Agrium played off each other, moderating output and exports along with demand to prevent price swings.
Uralkali plans to switch exports to its own unit, Uralkali Trading, from Belarusian Potash, a joint venture with Belaruskali set up in 2005 to bolster their market position. Cooperation reached “a deadlock” after Belarus’ government canceled BPC’s exclusive right to export the nation’s potash and Belaruskali exported the fertilizer ingredient on its own, the Berezniki, Russia-based producer said in a statement.
Potash in Vancouver, an export port for the commodity, fetched $410 a ton as of July 29, according to weekly price data from Green Markets.
The price has dropped 19 percent in the past 12 months. It reached $840 in 2009 before plunging to $325 the following year as farmers postponed purchases.
Uralkali, which has the lowest production costs among international peers, will run at full capacity next year, Baumgertner told reporters by phone.
Output will rise to 13 million tons in 2014 from 10.5 million tons this year, he said. Uralkali’s production cost is $62 a ton, compared with more than $100 a ton for North American producers and almost $240 in Europe, according to a company presentation in July.
Other global producers will be hurt more than Uralkali, which will be cushioned by increasing sales volumes, Sakhnova said. It’s the only potash producer that can ship potash by rail directly to China, the largest consumer of the soil nutrient, and it may hinder Belarus’s reach into the market, she said.
Material from Bloomberg News
is included in this report.