North America's big potash miners have doubled down on a production cut strategy they hope will lift the fertilizer's price from a near decade low, even as some investors warn this threatens their long-term profitability and props up weaker rivals.
Shares of Potash Corp of Saskatchewan and Mosaic Co., major players who have trimmed output when prices weakened, are down nearly 50 percent from a year earlier following their most recent production cuts.
Some suggest they should take a page from Saudi Arabia's oil strategy, boosting production to drive out higher-cost competitors, with the goal of maximizing profit over time.
"Lower prices would keep the new capacity out. That's more sustainable than trying to artificially maintain the price by closing (low-cost) facilities," said Bryan Agbabian, head of agricultural equities at Allianz Global Investors, which has avoided potash company shares for three years.
While this new approach would hurt share values in the near term, it would also begin a healthy industry transition, he added.
Potash Corp, which confirmed it is sticking with its tighter supply strategy, surprised many in January by closing its eastern Canadian mine about a year after opening it.
"The reason it works well is the resources in potash are more concentrated than any other commodity," Chief Executive Jochen Tilk said in an interview, noting that a few players in the industry have access to the majority of resources.
Mosaic CEO Joc O'Rourke told analysts last month that the company will continue to cut production when markets soften. Mosaic spokesman Ben Pratt said there has been no change in strategy since then and executives were unavailable for further comment.
Canpotex Ltd, the export potash sales agency for Potash, Mosaic and Agrium Inc, earlier this year reduced first-half export plans by 1.5 million tonnes, representing nearly 8 percent of its estimated 2015 sales.
But industry watchers noted this controlled-supply strategy helps European mines operated by K&S AG and ICL Israel Chemicals continue to produce potash at some of the highest costs in the business.
ICL is cutting operating costs in Spain, and plans to convert its United Kingdom facility to a specialty form of potash within two years. Those mines serve Europe's niche markets that sometimes yield premiums, said ICL Chief Executive Stefan Borgas.
"We don't lose any money anywhere," Borgas said.
Different Approach for Oil, Iron Ore
Commodity producers in other sectors, notably the Organization of the Petroleum Exporting Countries (OPEC), have embraced short-term price pain in a bid to close down higher-cost rivals, though competitors such as U.S. shale producers have proved more resilient than expected.
Still, Brent crude is up one-third in 2016 after bottoming out in January at its lowest price since 2003.
Likewise, spot iron ore has gained 15 percent in 2016, helped partly by a war of attrition waged by the biggest suppliers that has driven out some higher-cost competitors.
Wholesale U.S. Midwest potash prices, however, have fallen this year by one-quarter to their lowest since mid-2007, according to industry data compiled by NPK Fertilizer Advisory Service.
Stone Asset Management has not owned Potash Corp shares since early 2015, concerned that the company's strategy may cost it market share, and that fertilizer buyers hold most of the leverage, said portfolio manager Mohsin Bashir.
"What I fear for some of these companies with high dividend payout ratios, is that they can curb production for a brief period of time, but if they do it in perpetuity they're going to have to face another dividend cut," Bashir said.
To be sure, some think high-cost potash mines are too small, even if closed, to cure low prices by themselves, as seen by Intrepid Potash Inc's plan to idle its largest mine in July.
The 2013 breakup of a marketing alliance between Uralkali and Belaruskali increased competition, but didn't significantly weed out competitors.
Belaruskali, the second-biggest potash miner, does not feel pressured to cut output just because higher-cost producers are hanging on, said the company's director general, Ivan Golovaty.
Andrey Ilyin, chief financial officer of EuroChem, said the company is still planning on adding to global capacity by building two Russian potash mines by 2018.
"We have no ready answer as to which marketing strategy is best," he said. "Thankfully we do not have to decide on it today."