Uralkali’s announcement this morning that it will stop selling potash through the Belarusian Potash Company (BPC) is a significant development. The company stated that it expects to see a significant fall in the international potash price. The company announced earlier today that it will stop selling potash through the Belarusian Potash Company (BPC), will ramp up production and is predicting a fall in potash prices to $300/t from a current level of around $400/t. The announcement has had a significant impact on potash producer market valuations, with share prices of producers falling by 15-20%.
Integer does not believe that is a dramatic game changer in the business. The announcements are in line with Integer Research’s long held view that a lower potash price is necessary to stimulate demand and discourage new entrants. Prices might fall in the near term, but we do not expect to see a price war. The breakup of BPC still leaves over 50% of global capacity in the hands of two marketing companies – Canpotex and Uralkali Trading – down from around 65% before the announcement, and it remains an oligopoly business. The potash industry has long avoided cost-based pricing and it remains in no producer’s financial interests. The price only needs to drop to a level which will discourage new entrants to have the desired effect.
“Uralkali has a strong interest in sending out signals that the era of $500 per tonne high potash prices is over to deter potential new entrants” says Oliver Hatfield, Director of Fertilizer at Integer Research. “Supply is still highly concentrated in the industry without BPC, and although prices might drop in the short term, I would expect to see a continuation of the supply discipline which has distinguished potash from other commodity industries in the medium to long term.”
Written by William Irwin – Potash analyst at Integer Research.
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