The breakup of Europe's largest potash fertilizer cartel will change the game for its North American counterpart, Canpotex Ltd, forcing the company to accept lower prices that will hurt profits and keep shares low.
Canpotex, the export arm of Potash Corp of Saskatchewan, Mosaic Co and Agrium Inc, has for years jockeyed for sales contracts against the Belarusian Potash Company (BPC), owned by Russia's Uralkali OAO and Belaruskali, from Belarus.
The duopoly had accounted for about 70 percent of the global trade in potash, sealing big volume deals at similar prices with major buyers like India and China. BPC and Canpotex had shown no qualms about turning off the supply spigot when the buyers looked likely to get the upper hand in negotiations.
But Uralkali destroyed that cozy arrangement on Tuesday when it dismantled the BPC cartel because of disagreements with Belaruskali. The move could cause potash prices to fall 25 percent, Uralkali said.
Canpotex will likely stay in existence - it owns the railcars and port terminals that transport Canadian potash to market - but the dynamic of the market will change, analysts and investors said.
"I think it's the end of high profits for the medium term," said Barry Schwartz, vice president at Baskin Financial, which owns 130,000 shares in Potash Corp and has no plan to sell.
Shares in Potash Corp and Mosaic fell almost 20 percent, while stock in Agrium, which also has large nitrogen fertilizer operations, slid 5 percent. The declines knocked some $12 billion off their combined market capitalization, with trading volumes soaring to their highest levels in years.
Canpotex was set up in 1970 to market potash from Canada's Saskatchewan province, which has more than 40 percent of global reserves of the crucial crop nutrient, which helps plants develop strong roots and resist disease.
It accounted for 35 percent of the world's traded potash in 2012, according to Bank of America Merrill Lynch. BPC was only slightly smaller, with a 31 percent share of sales.
Larry Stranghoener, chief financial officer of Mosaic, said the of Minnesota-based company remains a "strong believer" in Canpotex, and thinks it is too early to consider shifting strategy, given that Uralkali could still change its mind.
"It seems there's a feud underway between Uralkali and Belaruskali and the rest of the industry's caught up," Stranghoener said in a telephone interview.
Others also expressed skepticism that Uralkali will hold a course that has already chopped 19 percent off its market value.
"I've never seen a company commit suicide in the open market before," Schwartz of Baskin Financial said. "Hopefully, they'll kiss and make up and all this will go away."
The timing of Uralkali's move is devastating to Canpotex in one sense, coming just as it tries to strike a second-half supply contract with China's Sinofert Holdings Ltd.
From another perspective, however, a big drop in potash prices will cast doubt over the development of new potash mines, in particular BHP Billiton Ltd's plan to build the world's biggest potash mine in Western Canada, the Jansen project.
"I think Jansen was probably dead before this and now it is certainly dead," said Mark Gulley, an analyst with BGC Financial LP. BHP declined comment.
Jansen is slated to produce 8 million tonnes of potash a year once it is up and running in 2017, a clear threat to Canpotex' stranglehold on North American exports.
While North American producers' shipments to China are likely to drop off if they stay within Canpotex and if Uralkali runs its mines flat out, Canpotex will likely stay strong in growing South American markets like Brazil, analysts said.
"I assume that Canpotex would continue to function," said Paul Burnside, analyst at CRU. "I would have thought prices would really have to fall down to cost of production for Canpotex to become unworkable, but the members may have divergent views on how to respond to the break-up of BPC."
For Potash Corp, it is business as usual for now, but the company is keeping a close eye on Uralkali's moves, spokesman Bill Johnson said.
Agrium CEO Mike Wilson was not available for comment, and Canpotex officials did not respond to a request for comment.
The role of Canpotex loomed large in the 2010 debate about whether Canada should approve a $38 billion bid for Potash Corp from BHP. Canada rejected the bid after Saskatchewan raised concerns that weaker potash prices would cut its royalties.
Canpotex's infrastructure includes 5,000 rail cars and export terminals in British Columbia and Oregon.