Bruised potash sellers may lift curbs on output
He said the global potash trade might best be described as an oligopoly, dominated by Canpotex and BPC. It can be compared to the iron ore sector a few years ago, when a few big producers set market prices with Japanese steel buyers.
That situation changed when China became the world's dominant buyer, and BHP Billiton switched to a strategy of maximizing volume, establishing itself as the low-cost producer.
Canpotex declined requests for an interview.
Canpotex and BPC struggled in 2012 to maintain their bargaining clout.
With China and India on the sidelines, North American potash supplies ballooned to 37 percent over the five-year average in December. And while Potash Corp does not see many of the planned mines getting built, it still expects global capacity to grow 24 percent to 77 million tonnes by 2017.
BHP is digging two mine shafts in Saskatchewan for what would be the world's biggest potash mine, ahead of a final board decision this summer. Germany's K+S started work on its mine in the Canadian province last summer. But Vale SA recently delayed projects in Canada and Argentina.
In a recent report, Scotiabank analyst Ben Isaacson said a volume-over-price strategy could help Potash Corp by frightening away competitors and reducing the per-tonne cost of production.
"Perhaps one of the most important benefits of dropping potash prices to the low $300s (per tonne) would be that the continued spending of capex by almost all greenfield sponsors
would no longer make sense. We believe the majority of greenfield projects, including many brownfield expansion projects, would be shelved," Isaacson wrote.
Among the big buyers, fertilizer companies and farmers in India would respond quickly if prices fell to compete better with urea, a more common nitrogen fertilizer, said a senior
official from an Indian fertilizer co-operative, who declined to be named.
But it is hard to predict what will happen. The Indian government plans to cut its fertilizer subsidy for 2013/14 to take advantage of lower potash prices.
Ultimately, whether potash producers change course depends largely on decisions in the boardrooms of potential rivals.
"It's tough for us to get a picture on when those projects will come to market," said Rick McLellan, Mosaic's senior vice-president of commercial sales. "Our strategies will develop
as new competitors enter."