A Happy New Year for Fertilizer Stocks? - Analyst Blog

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The New Year appears to have begun on a cheery note for fertilizer makers. The world's largest potash maker - Uralkali Group - is renewing its tie-up with Belarusian potash producer Belaruskali, the Russian ambassador to Belarus Alexander Surikov said at a press conference recently.

If this eventually happens, it will mark the return of one of the biggest potash cartels - the Belarus Potash Company (BPC) - that controlled nearly half of the global potash market. Surikov noted that, following the change of its shareholder structure, Uralkali is poised to restore its union with Belaruskali, a move which would benefit both sides.

Russian tycoon Mikhail Prokhorov recently acquired a 21.75% stake in Uralkali from billionaire Suleiman Kerimov. Moreover, Russian fertilizer company Uralchem has purchased around 20% of Uralkali. Last month, Uralkali announced the appointment of Dmitry Osipov as its new CEO, replacing Vladislav Baumgertner who is under house arrest in Moscow under a charge of abuse of power as the chairman of the BPC Supervisory Board.  

In a shocking move, Uralkali pulled out of the BPC in July 2013 - pushing potash stocks off a cliff on fears of falling prices and leaving the industry in dire straits.  

Set up in 2005, BPC is one of the two largest cartels (the other is North America's Canpotex) which controlled the market for potash - a key commodity in fertilizer production - over the last few years. The duopoly, which account for more than two-third of global potash trade, had usually set similar price in negotiation with India and China - two biggest buyers of potash. They influence potash pricing by controlling the production and supply.    

Uralkali, which has around 20% share of global potash production, broke its alliance with Belaruskali in BPC. The Russia-based potash producer cited that its coalition with the Belarusian partner reached a "Deadlock" after the Belarusian president revoked BPC's exclusive rights to export the country's potash and Belaruskali violated the agreement and exported fertilizers outside the partnership.

As such, Uralkali's Board decided to end export sales through BPC and direct all potash export through its Switzerland-based trade arm Uralkali Trading. Uralkali noted that its change of policy could lead to a fall in potash prices on increased competition. It also landed a supply pact with a leading Chinese fertilizer importer - CNAMPGC - and announced its goal to boost potash production volume.

Fertilizer stocks fell out of the bed on the Uralkali cartel exit news with Potash Corp ( POT ), Mosaic ( MOS ) and Intrepid Potash ( IPI ) were the worst hit, wiping out roughly $12.5 billion of their market value combined. While Potash Corp., Mosaic and Intrepid Potash saw their share prices decimate roughly 17%, 18% and 29%, respectively, Agrium 's ( AGU ) shares sagged around 5%.

Fertilizer producers have been grappling with weak pricing. Uralkali's move triggered industry-wide fear of a price war and put considerable pressure on potash prices. Surikov's statement represents a good omen for fertilizer makers as the return of BPC will provide a much needed thrust to boost potash prices as well as fertilizer stocks.



AGRIUM INC (AGU): Free Stock Analysis Report

INTREPID POTASH (IPI): Free Stock Analysis Report

MOSAIC CO/THE (MOS): Free Stock Analysis Report

POTASH SASK (POT): Free Stock Analysis Report

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This article appears in: Investing , Business , Stocks

Referenced Stocks: AGU , IPI , MOS , POT

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