The global fertiliser market faced a major shake-up after Russia's Uralkali, a leading potash producer, pulled out of one of the two big cartels, sending sector share prices tumbling.
Uralkali pulled out of the Belarus Potash Corporation export cartel that controlled almost half of the global potash market, after it said its Belarusian partner was violating an agreement and selling outside the partnership. It said the end of the cartel would lead to potash prices plunging by 25 per cent.
The breakdown of BPC, which along with North America's Canpotex, controlled the global potash market, hit fertiliser shares. Uralkali shares fell 17 per cent, K+S of Germany declined 21 per cent, PotashCorp was down 23 per cent and Mosaic fell 22 per cent.
Joel Jackson at BMO Capital Markets in Toronto said the breakdown of the BPC cartel marked "the end of the potash world as we know it."
Potash is a vital commodity in production of fertiliser and until now, the two cartels BPC and Canpotex, which includes PotashCorp of Saskatchewan, Agrium and Mosaic, have maintained prices at profitable levels by refraining from flooding the market with products.
Vladislav Baumgertner, Uralkali's chief executive, said potash prices could fall 25 per cent after his company decided to stop all its export sales through BPC, from $400 to $300 after the company's change in strategy. He added co-operation within the BPC framework was in "deadlock", blaming Belaruskali for making some deliveries outside of the joint venture.
With Uralkali selling through its own trading company and producing at 100 per cent capacity, "we expect the competition on the potash market to increase, which will put pressure on the price that might go to under $300 per tonne by the end of 2013," Mr Baumgerner said on Tuesday.
Exports by Uralkali would be redirected through its own trading company, Mr Baumgertner said, while Uralkali would try to boost sales from 10.5m tonnes this year to 14m tonnes in 2015.
BHP Billiton, the world's largest mining group by market capitalisation, is expected shortly to decide whether to take a substantial step into the potash market by committing billions of dollars to the development of a mine in Canada.
However, prices have been under pressure, with weak demand from India, one of the largest markets.
K+S, which is seen as one of the producers most threatened by a sustained cut in prices, said it was irritated by Uralkali's announcement and that insisted positive medium and long-term trends for potash fertilisers remained unchanged. "We will monitor further developments very closely," said the German group.
The announcement by Uralkali comes days after it revealed that Alexander Nesis, the Russian billionaire, sold his 5 per cent stake in the group. Suleiman Kerimov, another Russian billionaire, holds more than 17 per cent of Uralkali. The company also announced an agreement with CNAMPGC, a Chinese importer, to supply 500,000 tonnes of potash through to the end of the year.
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