Analysis: Russians still set to hold potash pricing key

By Rod Nickel

WINNIPEG, Manitoba (BestGrowthStock) – European producers will continue to set the tone for global potash pricing, even if BHP Billiton clinches a deal for Potash Corp of Saskatchewan, the world’s biggest producer of the crop nutrient.

Potash Corp typically tailored its production to supporting prices. But in recent years the Belarussian Potash Company (BPC), the marketing arm of producers Belaruskali and Russia’s Uralkali, set the tone for prices with annual supply deals with major buyers in China and India at prices below the ones that Canadian producers want to see.

That’s unlikely to change even if BHP gets Potash Corp, said David Asbridge, president of St. Louis Missouri-based NPK Fertilizer Advisory Services.

“When Potash Corp was trying to hold up prices last year, BPC came in and set some contract numbers lower than (the Canadian producers) wanted them to be. Really, there shouldn’t be a whole lot of difference (to pricing dynamics) — there will still be enough various entities.”

Neither a combined BHP-Potash Corp nor a possible combination of Uralkali, Silvinit and Belaruskali would hold more than 50 percent of the world’s capacity, Asbridge said.

Potash Corp has about 11.2 million tons of operational potash production capacity, with plans to expand to 17.1 million tons by 2015.

BHP has no active potash mines but has planned an 8-million ton-capacity site in Canada.

“If you exchange Potash Corp ownership for BHP ownership it doesn’t change the competitive position very much in terms of concentration in the industry,” said Patricia Mohr, vice-president of economics and commodity market specialist at Scotiabank.

BHP also seems less likely to build its proposed new mine at Jansen, Saskatchewan or develop its other Canadian sites if it wins Potash Corp.

“I do not believe if they acquire Potash Corp they will end up building their project in Saskatchewan, at least not for the foreseeable future,” said Jaret Anderson, an analyst for Salman Partners Inc in Toronto.

Much depends on whether a victorious BHP continues Potash Corp’s strategy of restricting production to boost prices and whether it takes Potash Corp’s place in a marketing arrangement with fellow Canadian producers Agrium Inc and Mosaic Co.

North American farmers, who have long resented the concentration of fertilizer capacity due to concerns about high prices, may see a BHP-Potash deal more warily.

“The less competition you have, the more control they (the fertilizer companies) have over prices,” said Joe Wise, who has farmed for more than 60 years in Indiana. “You can shop around, but you are going to pay about the same price.”

(Additional reporting by Michael Hirtzer and Euan Rocha; editing by Janet Guttsman)

Analysis: Russians still set to hold potash pricing key