This news may have something to do with yesterdays selloff in...

This news may have something to do with yesterdays selloff in MAK..

Potash sector rocked as Russia's Uralkali quits cartel
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By Polina Devitt and Natalia Shurmina
MOSCOW | Tue Jul 30, 2013 3:15pm EDT
(Reuters) - Russia's Uralkali (URKAq.L) (URKA.MM) quit one of the world's two big potash cartels on Tuesday, heralding a price war for the key crop nutrient and pummeling the shares of companies that produce it.

The break-up of the Belarusian Potash Company (BPC), a joint venture with Belarussian partner Belaruskali, leaves North America's Canpotex as the dominant potash export venture.

It could lead to cancellations of projects by rivals as the industry weighs the effect of lower prices, but may bring better deals for farmers.

"It is as if Saudi Arabia decided to leave OPEC - oil prices would fall immediately," said Dmitry Ryzhkov, equity sales trader at Renaissance Capital.

In negotiations with big buyers like India and China, BPC and Canpotex usually settled for deals at similar prices, and they had no qualms about turning off the supply spigot when the buyers looked likely to gain the upper hand. Together the two accounted for almost 70 percent of global potash sales.

That clubby system is now under threat after a falling out between BPC's members. Uralkali promised to bolster production and sales, even as potash prices are already in decline.

U.S.-listed shares of the Canpotex owners - Potash Corp of Saskatchewan (POT.N), Mosaic Co (MOS.N) and Agrium Inc (AGU.N) - plummeted, cutting their market value by nearly $12 billion by early afternoon.

In the last few years, BPC and Canpotex raised potash prices well above their production cost, a senior official at a major Indian potash firm said, asking not to be identified because of the sensitivity of the matter.

"It hurt Indian companies, Indian farmers and the Indian government," the official said. "The break-up will limit their power ... Certainly this will bring down potash prices."

Uralkali is pulling out of the venture after reaching "deadlock" over sales and will export potash via its Swiss-based Uralkali Trading, chief executive Vladislav Baumgertner said.

"In the near future we expect (global) competition to become stronger - that will push prices down," Baumgertner said.

The decision to quit BPC may cut the global potash price to below $300 per metric ton (1.1023 tons) in the second half of 2013, from the current $400, Uralkali said. Lower fertilizer prices could mean rising demand from price-sensitive farmers in Asia.

Shares of Uralkali, part-owned by tycoon Suleiman Kerimov, plunged 19 percent, prompting the Moscow bourse to suspend trading in the stock.

Shares of Germany's K+S (SDFGn.DE), a rival fertilizer firm, sank by 24 percent to a six-year low.

Potash Corp shares fell 19 percent, while Mosaic and Agrium lost 18 and 5 percent respectively. Agrium's fall was less steep as it is more focused on nitrogen production than potash.

Farmers would be big winners from a drop in potash prices, although grain prices are also key to their profits, said Charles Neivert, analyst at Cowen Securities.

"You've got the Brazilian season coming up and (farmers) are licking their chops on this one."

Uralkali will now look to boost sales to retain its dividend policy. It plans to boost potash sales to 13 million metric tons in 2014 and 14 million metric tons in 2015 from 10.5 million metric tons this year by expanding market share in China, India and Brazil.

It plans to export more than 2.5 million metric tons to China this year, up from 2 million in 2012.

However, it will be harder to win business in India as companies there have already signed import deals for 4 million metric tons, said a senior official at state-run Rashtriya Chemicals and Fertilizers Ltd (RSTC.NS), declining to be named.

A new emphasis on volume by Uralkali may force Canpotex to consider the same strategy, instead of carefully matching production levels to demand.

The second-biggest Canpotex producer, Mosaic, said on Tuesday that it's too soon to change course, and it doesn't see Canpotex crumbling.

"It seems there's a feud underway between Uralkali and Belaruskali and the rest of the industry's caught up," said Mosaic Chief Financial Officer Larry Stranghoener. "We're still trying to sort out what Uralkali intends to do, which may be different from what it says it will do."

NEW PROJECTS

The price fall could cause new potash projects to be delayed or cancelled, Raffeisenbank analyst Konstantin Yuminov said.

Miner BHP Billiton (BHP.AX) (BLT.L) plans the world's largest potash mine in Western Canada, with a 2017 opening date for the $14 billion Jansen mine.

BHP is expected to take a decision on the Jansen project this fiscal year. Rival industry executives have questioned the project's profitability at current price levels.

BHP declined to comment on the impact of Uralkali's move.

Uralkali said it would delay its Polovodovsky mine, which would cost an estimated $2.4 billion to build and increase its capacity by 2.5 million metric tons. Other projects canceled or delayed include the $6 billion Rio Colorado potash project in Argentina, which Brazilian miner Vale (VALE5.SA) quit this year.

VOLATILITY

The BPC news came days after Uralkali said shareholder Alexander Nesis had sold his 5 percent stake. Uralkali said it would freeze its buyback program due to likely volatility in its stock.

Uralkali, with costs of around $60 per metric ton, said global prices were likely to be kept above $200 per metric ton, supported by European and North American operators that have higher costs.

Potash is the main export product for Belarus, Russia's staunchest ally among the former Soviet republics whose economy is stagnating after a financial crisis in 2011.

Belaruskali was a partner to Uralkali for eight years in BPC, which once held 43 percent of the global potash export market. Uralkali was at one point rumoured to be interested in buying a stake in Belaruskali - which now looks unlikely.

Their joint venture started to crumble this year as rumors emerged that both were selling potash outside the partnership. The two firms previously denied those rumors.

Uralkali said it pulled out because Belaruskali had made key fertilizer ingredient deliveries outside the partnership.

The decision came as a surprise for Belaruskali, said a top manager who asked not to be identified. According to Uralkali's CEO, the company had informed Belaruskali verbally on Monday and then formally on Tuesday. Belaruskali and BPC did not comment.