Both stand to win big from the price fall
India and China played a key part in bringing down a giant Russia-Belarus potash cartel, and will reap the fruits of the coming crash in prices for the key crop nutrient, media reports said.
The Belarusian Potash Company (BPC) venture, owned by Russia’s Uralkali and Belaruskali, collapsed on Tuesday after the Russian partner walked out of the marketing venture.
The downfall of the cartel, which accounted for 40 per cent of global potash sales, was triggered by a decree signed by Belarusian President Alexander Lukashenka in December that cancelled BPC’s exclusive right to export Belarusian potash.
According to Russian media, it was Indian and Chinese potash importers that prevailed upon the Belarus leader to sign the fateful degree.
“Normally, India and China are locked in cut-throat competition, but this time around, they acted in concert to bring down potash prices,” a source in the Belarus Ministry of Agricultural Production told Gazeta.ru, a leading Russian online paper.
“The Indian and Chinese importers convinced Mr. Lukashenka that Belarus could earn more if it marketed its potash on its own, rather than through the joint arrangement with Russians,” Gazeta.ru said, citing the Belarus official.
Potash exports in Belarus contribute 6-10 per cent to budget revenues, and Mr. Lukashenka jumped at the chance to increase the share at a time when the Belarus languishes in deep crisis.
Along with Canada’s Canpotex, BPC controlled 70 per cent of global potash trade, and the duopoly was able to keep prices high by cutting supplies when demand weakened. Both the Russian and Belarus potash producers are now running at about 60 per cent capacity utilisation.
Announcing his decision to quit the alliance with Belarus, Uralkali Chief Executive Vladislav Baumgertner said his company was switching to volume-over-price strategy, which could lead to a 25 per cent drop in world prices.
“We expect the potash price to fall below $300 a tonne after the change in our trading policy,” he told journalists on Tuesday. The price now stands at about $400 a tonne.
Uralkali, which has the lowest production costs compared to other potash producers, hopes to recoup losses by hiking output.
Meanwhile, India and China, the two world’s largest importers of potash, stand to win big from the price fall.