Uralkali ( URALL , quote ), the largest producer of potash in the world is exiting a marketing venture with Belarus' BPC signaling that they will sell what they want, when they want at whatever price they want.
As a result, they themselves say potash prices are headed below $300/ton from approximately $400 right now. The Chinese and Indians are licking their chops as they are the biggest customers of potash.
What's going on?
Pricing discipline in potash industry is falling apart. This was one of the great oligopolies operating in the global markets but volume over price is now the strategy.
Uralkail yesterday concluded a momentous board meeting where they cancelled their buyback, said they are boosting production, and also said they will no longer adhere to their marketing agreement.
Prior to yesterday, Uralkali and BPC in Belarus controlled 35% of the world's supply. Uralkai currently has 20% of the market.
What will competitors do in response? Mosaic ( MOS , quote ) can ramp up production; in fact, many players can ramp up production.
This could lead to an overshoot to the downside on spot price of potash if some sense of discipline doesn't return to this industry.
The other key part of this news is that with pricing power off the table, it makes the consolidation thesis in the industry less of variable in valuing the sector.
Add in a new pricing paradigm of $300 on spot and there will be massive downgrades in the sector for potash players.
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