Bruised potash sellers may lift curbs on output
The world's top potash producers may abandon attempts to rein in output to keep prices high, switching to a strategy of ramping up sales as they face rising competition and big buyers of fertilizer take an increasingly aggressive stance.
Such a shift would change the game for the giant North American and Russian-Belarusian producers, which export the fertilizer through Canpotex Ltd and Belarusian Potash Co,
Instead of reining in output to support prices, and then selling potash to big buyers in contracts that set a benchmark for other deals, the miners might maximize sales through marketing organizations in what some see as a throwback to cartels of the past for commodities such as coffee, rubber and tin.
By boosting sales volume, the established producers could drive down prices to the point where opening new potash mines might make no sense for competitors.
Canpotex and BPC account for about 70 percent of world exports. If that dropped to 50 percent as competitors open new mines, "reasonable economic players" will simply not implement the current strategy stressing price rather than volume, Vladislav Baumgertner, chief executive of Russia's Uralkali OAO, told Reuters in an email.
"In this situation, we will look more like traditional industries: the main competitive advantage will be the production costs and the cost of capacity expansion," he said, warning that the addition of any more potash from newly opened mines could overload the market.
Canpotex and BPC, and the producers behind them, face supply challenges from new mines planned by BHP Billiton Ltd, K+S AG and a raft of junior players, as well as pressures from buyers smelling an opportunity to seek deals on more favorable terms.
But Baumgertner said he doubted that many of the proposed mines will get built, because potash prices are too low to make them viable.
Demand for potash, a nutrient that improves yields of corn, rice, palm and other crops, boomed in the past decade as diets and incomes improved in developing countries and demand for food rose.
Prices soared in 2008, prompting an unsuccessful, $39 billion bid for Potash Corp of Saskatchewan, the world's biggest producer by capacity, from global mining giant
They fell back in 2009 and bottomed out in 2010 as farmers balked at sky-high prices. Potash recovered modestly in 2011 before drifting lower last year. While most in the industry continue to see strong demand growth long into the future, some question whether there is too much new capacity being readied, a case that has gained momentum with the current lackluster