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Uralkali Breaks Potash Cartel to Grab Market Share


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Uralkali Breaks Potash Cartel to Grab Market Share

 

http://www.bloomberg.com/news/2013-07-30/uralkali-sees-potash-price-slump-after-exiting-bpc-trade-venture.html

 

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Uralkali shares fell as much as 25 percent, the most since November 2008, and traded down 17 percent at 154.93 rubles by 5:45 p.m. in Moscow. Trading was suspended for a half hour after shares crossed the 20 percent threshhold. K+S AG (SDF) shares plummeted as much as 27 percent, the most in 15 years, and Israel Chemicals Ltd. (ICL) fell 18 percent in Tel Aviv. Potash Corp. and Mosaic each dropped 23 percent in New York, while Agrium declined 8 percent.

 

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http://online.wsj.com/article/SB10001424127887324354704578637613345900562.html?mod=WSJ_business_whatsNews#articleTabs%3Darticle

 

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For years, 66% of the world's potash—a highly effective potassium-based fertilizer ingredient—has been sold through two marketing groups: Belarusian Potash Co., or BPC, and North America's Canpotex. The two traders had set identical prices in major markets such as India and China, effectively operating as a cartel similar to the exclusive diamond trade.

 

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The industry currently has too much capacity.  For example, POT isn't running its Patience Lake operation at full capacity.  World potash capacity is expected to go up by roughly half over the next several years.  Most of these guys have publicly announced their expansions and I think that a lot of the capacity in the works will come online.

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I guess that's the end of BHP's Jansen mine?

 

Anyone that has been looking at other names that have been dragged down but have less to do with Potash itself?

 

For instance compass minerals? Beaten down around 17%, although its main source of revenue is salt (for which they are low cost producer if I am not mistaken) and 25% is a special form of potash fertilizer (SOP) ?

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This is interesting from a market efficiency viewpoint.  I view this as mostly just noise and positioning by uralkali.

 

Think about what just happened, a company has announced that they will be increasing their volumes and that prices will be dropping.  Now why would a firm do something like this?  Can you see XOM announcing that oil prices are going to be crashing soon? 

 

I think it all comes down to the increased production that is being built.  Their is simply too much production being planned, prices would collapse if it all came online.  So when viewed from that perspective, this is effectively a scare tactic, probably aimed most squarely at BHP's new mine but really to all the players who are bringing on production.

 

When you view it like that, then what has really changed?  What do we know now that we didn't know a few days ago?  Not saying the potash producers are necessarily a buy at these levels but I view this as the market being very irrational in that potash equity prices shouldn't have changed as much as they did.

 

I would also note that the uralkali and the other belorussian producer never really played ball as far as the restricting volume.  They were always the first to crack, have done so numerous times over the past decade.  They can say they will be producing full-out to scare people, but that is what they have always done.

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Potash’s $20 Billion Market Transformed by Uralkali

 

http://www.bloomberg.com/news/2013-07-31/potash-s-20-billion-market-transformed-by-uralkali.html

 

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For some potash miners, the concern is that prices may fall close to, or less than, the marginal cost of production. Uralkali has costs of $62 a ton, compared with more than $100 for North American miners and almost $240 in Europe, according to the company’s July presentation.

 

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http://seekingalpha.com/article/1617082-bill-doyle-potash-savior?source=yahoo

http://www.potashcorp.com/video/30991/

 

"Yesterday evening, good old Bill Doyle, Potash CEO, came out with an interview answering some of the most pressing questions that investors had regarding potash.

 

Where do you see the price, do you see Canpotex breaking apart, are you viable with sub-priced potash, is the dividend sustainable.....

 

If you haven't watched the video, I highly recommend it. The tone was undoubtedly bullish with the CEO believing that there was no rationality in the decision made by Uralkali (URALL.PK)"

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