For the first time in eight years, the $20-billion global market for the crop nutrient potash is set to become freely traded.
In a surprise announcement on Tuesday, OAO Uralkali, the biggest supplier of the commodity, said it decided to end production restrictions that underpinned global prices and suspend a venture with a Belarusian miner that controlled exports from the former Soviet Union.
Shares of Uralkali and its biggest competitors - Potash Corp of Saskatchewan Inc, Mosaic Co and Israel Chemicals Ltd - tumbled as much as 24 per cent as investors anticipated a flood of supply overwhelming demand.
The venture that Uralkali is abandoning is one of two that until now have controlled most of the world's supply by negotiating fixed-term supply contracts on behalf of their members. That means the potash companies don't compete with each other individually in export markets, helping them to match production with demand.
The change may drive down prices as much as 33 per cent, according to Elena Sakhnova, a VTB Capital analyst in Moscow. Lower fertiliser costs promise to cut farmers' expenses and spur demand from India to China. That in turn may increase the size of crops from corn to soybeans and lower food prices around the world.
'Game-changing'
"This effectively brings about a transformation of the entire potash industry, shifting it away from what has been a de facto duopoly," Matthew Korn, an analyst at Barclays Plc in New York, said in a note. "This is one of the few occasions of a market truly undergoing a sudden game-changing event, with impacts that cannot be overstated."
Uralkali will no longer sell potash through Belarusian Potash Corp, the Minsk-based marketing company it established in 2004 with rival miner Belaruskali. Until Tuesday, BPC controlled about 40 per cent of global potash exports.
The other group dominating the market is Canpotex Ltd, which since 1972 has exported potash for Canada's Potash Corp and Agrium Inc and Plymouth, Minnesota-based Mosaic. Leah Laxdal, a Canpotex spokeswoman, didn't immediately return a call seeking comment.
Potash Corp, Uralkali and other producers have faced a lawsuit in the US court in Chicago from purchasers claiming the companies violated the federal Foreign Trade Antitrust Improvement Act, which can be used to extend the reach of American antitrust laws to foreign anticompetitive conduct that affects US imports.
Lowest cost
US District Judge Ruben Castillo on June 6 granted final approval to a $10-million settlement between the suing direct purchasers and producers Uralkali and Silvinit. Six days later, he approved a separate $17.5 million pact with defendants Agrium, Mosaic and Potash Corp.
Uralkali said on Tuesday in a statement it broke with BPC after the Belarus government cancelled the group's exclusive right to export the nation's potash.
