Russia's OAO Uralkali, the world's largest producer of potash, yesterday quit from Belarusian Potash Co (PBC), one of the two big global potash cartels, sending stock price of potash miners plunging.
Until yesterday, the annual $20 billion global trade in potash is controlled by two dominant cartels - Belarus Potash Company (BPC) and Canpotex.
BPC, which controlled 35 per cent of the world's potash supply, comprised of Uralkali and Belaruskali, while Canpotex comprises of Potash Corp, Mosaic Co and Agrium, but Uralkali, part-owned by billionaire Suleiman Kerimov, said it is quitting BPC after alleging that its partner undermined sales accords.
The announcement, much to the delight of China and India, is likely to send potash prices crashing to $300 a tonne from $400 a tonne, but share prices of all the big potash miners already plunged by as much as 27 per cent.
The decision to quit BPC sent share price of Germany's fertilizer firm K+S plunging by 24 per cent Uralkali and Potash Corp by 19 per cent, Mosaic by 18 per cent, Israel's ICL by 15 per cent and Agrium by 5 per cent.
Berezniki-based Uralkali said in a statement that co-operation with Belaruskali reached a deadlock after Belaruskali sold potash independently based on its government cancelling the exclusive rights to export potash through BPC.
Speaking to reporters, Uralkali's CEO, Vladislav Baumgertner, said that it will start exporting the commodity through its Swiss trading unit Uralkali Trading and added that prices of potash could fall by as much as 25 per cent.
The immediate fallout would be potash miners would halt all new projects and expansion, scale back production and prices could fall to as low as $300 a tonne.
Farmers from consuming countries like India, China, Brazil, Australia, Malaysia, Indonesia, Japan and Korea would now be dealing with more independent companies rather than just two cartels, which have historically controlled prices and production.
The biggest loser may be mining giant BHP Billiton, which has until now invested around $2 billion and was planning to go ahead in developing its Jansen potash mine in Canada at a cost of a whopping $14 billion.
The biggest gainer may turn out to be Urakali, which controls 20 per cent of the global potash market.
With the lowest production costs among its other rivals, Urakali will ramp up production and raise output to 13 million tonne next year from current production of 10.5 million tonne.
Uralkali has the lowest production cost at $62 a tonne, compared to more than $100 a tonne for its North American rivals and almost $240 a tonne for its European peers.
Potash is a common name for various potassium compounds used primarily as fertiliser and also for industrial purposes. It is a central nutrient in the fertilisers that are required to enhance the yields of grain, a critical commodity whose demand is growing in step with the world's rapidly growing population.
As such, India and China, which must supply food to more than two billion people, have become large consumers of potash.
Canada is the world's largest producer of potash with 11 mt annually, accounting for around 30 per cent of the global production and over 60 per cent of the reserves, followed by Russia, Belarus, Germany, Israel, China and others.
India is the largest importer of potash followed by China and Brazil - all rapidly growing economies that have to support huge populations.
India and China together account for almost 70 per cent of global potash imports.