Bruised potash sellers may lift curbs on output
Spot prices for potash are now around $460 per tonne, well below the price of $550-$600 that Mike Wilson, CEO of No. 3 Canadian producer Agrium Inc, sees as needed if new entrants are to make money.
"Every one of these (potential rivals) are getting their capital cost reports and they're cringing," Wilson told Reuters in an interview. "They're sitting there choking."
A BHP spokesman declined to comment on what potash price it requires for the board to give final approval to its Jansen, Saskatchewan mine, but pointed out that hundreds of people
continue to work on building the project.
While the new mines pose big questions about the future of the market, the present hasn't been so hot either.
China and India, the two big importers whose purchases traditionally set a floor for global potash prices, stayed out of the market for much of 2012's second half, bruising Potash
Corp's balance sheets.
Deals that China and India eventually signed included steep discounts on big volumes, and the two are also taking small steps to loosen their dependence on Canpotex and BPC with deals to buy future mined potash from upstarts Prospect Global Resources Inc in Arizona and Karnalyte Resources Inc in Saskatchewan, respectively.
But existing producers still have advantages against new entrants, because it's cheaper to expand existing mines than to build new ones.
Shifting the priority to volume from price would be ironic for Potash Corp, given that concern about the BHP bid for Potash Corp centered partly on fears that BHP would not curb output and weaken Canpotex, which handles sales of Saskatchewan potash from Potash Corp, Agrium and Mosaic Inc.
BPC handles sales for Uralkali and Belaruskali.
"You've got to get some wind back in your sails to get prices back moving up," Potash Corp Chief Executive Bill Doyle said of his own company on a Jan. 31 analyst call. "Of course, the wind for us is volume. We focus so much on price, but you've got to have some volume coming back in the market."
Potash Corp shut several mines for weeks at a time this winter, seeking to match supply to demand.
But Agrium's Wilson said a lower price is no guarantee of extra sales. "We've got to strike the right balance," he said.
Canpotex member companies say they do not co-ordinate production to set prices, the traditional mark of a cartel. But they conduct off-shore sales and co-ordinate transportation
through Canpotex in an arrangement that critics say is cosy.
"It's not a clear-cut situation," said Mike Burt, director responsible for industrial economic trends at the Conference Board of Canada. "I can't really say what's going on inside the organization. The public statements are that the companies are setting their own production. But it's obviously a fairly close relationship."