Belaruskali and Uralkali are spreading rumors of reuniting the former global potash powerhouse exporter, BPC (read more from Reuters). If you recall, the two split under tense terms in June 2013. Each vowed at the split to flood the globe with potash at discounted prices. The two have functioned independently from that day to now.
In the global potash market, the two biggest importers are China and India. Typically, China has been the first one to make a deal for potash imports with one of just a few global exporters. The price agreed to between the two has set the global price for potash, and directly impacts the price of potash in the Midwest.
Historically, in recent years, once China has found a seller at its agreed upon price, India quickly follows with a contract of its own, usually at a price just above that of the Chinese tender. The joint venture BPC, headquartered in Minsk, was among the global potash players glued to that price.
The price of potash around the globe and in the U.S. began to plummet at the news of the BPC split and has continued to do so as long as Uralkali and Belaruskali remain at odds. In all of this, we have to remember that Belarus and Russia were once loyal to the same flag, and Belorussian politics are even more strict than in Russia herself. But the Putinesque persona befits both Uralkali and Belaruskali.
The result of the Former Soviet Union (FSU) production battle was not only lower prices, but it also forced North American producers to curtail production, stall operations and brought exploration and new projects to a screeching halt.
A fair amount of intrigue filters in to the story at the same time BPC dissolved. Both producers fancied themselves men of their word, but eventually accused each other of trading potash in the global market outside of the joint venture. In that way, executives from either company were considered guilty of breech of contract and liable for such (read more).
Director general Vladislav Baumgartner of Uralkali was lured to Minsk, Belarus where he was promptly arrested and very publicly incarcerated in what the press termed as a “gulag”. A move reminiscent of the incarcerated Ukrainian heroin Yulia Tymoshenko. Eventually Baumgartner was placed under posh house arrest and then allowed to return home to Russia.
So here are two titans of the old FSU guard, separated but basically operating with the same goal in mind. It is easily argued that their feud has gotten the desired shared results of both... to flood the globe with potash and hinder the competitiveness of adversaries.
I bring all of this up because of the rumors of a restart of the Uralkali/Belaruskali joint venture. This year’s potash price has been much less certain because in 2016, China did not sign a contract in January. This year, they appeared to be waiting out global price strength when the fact is, all along they have been working with Russian exporters via rail, and banking surplus tonnage of potash, all the while upgrading their own potash production capacity.
India stepped up first and out of seasonal demand made a deal with Belarus for potash at $227 per tonne. Just a week later, industry watchers began to whisper about a deal for Russian potash at $210 per tonne to China. The new price between Belarus and India is 32% below the same deal last year, the whisper number of $210 into China is 33.3% below the same deal last year. Almost sounds close enough to be a gentleman’s agreement.
At this point in the saga, we know North American producers are already feeling the sting of low retail returns, and with a 33% price cut from last year’s guidance, the near-term future appears bleak. Whether the joint venture BPC is ever rebuilt or not is unimportant. As this slow burning story unfolds, Belarus and Uralkali are working toward the same ends while maintaining their individuality as companies. But since Uralkali and Belaruskali are the top two potash producers in the world at present, with or without an official union, the FSU producers are front-runners in the global potash marketshare grab to the detriment of North American and other potash producers.
Click here to read a very detailed account from Institute of Modern Russia, September 2013.
Photo credit:
Baumgartner imprisoned
Potash mining operation
Putin & Lukashenko
