BHP takeover could shake up potash pricing control

* Canadian miners match production to prices

* Full-capacity production seen easing prices

By Rod Nickel and Euan Rocha

WINNIPEG/TORONTO, Aug 20 (BestGrowthStock) – BHP Billiton’s
(BHP.AX: ) entry into the potash industry through a bid for
market leader Potash Corp (POT.TO: ) could shake up a cozy system
of pricing and production if, as some expect, the newcomer
shuns existing arrangements and runs plants at full capacity.

A coterie of companies dominates the global trade in potash
right now, using their clout to underpin prices when they are
low and take advantage of a strong market when they are high.

The two big exporters are Canada’s Canpotex, controlled by
Potash Corp, Mosaic Co (MOS.N: ) and Agrium Inc (AGU.TO: ), and the
Belarussian Potash Co, which groups eastern European producers.
Canada, Russia, Belarus, Germany, Israel and Jordan account for
roughly 90 percent of world supply.
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BHP, for its part, has traditionally shunned such marketing
groups, and run plants at full capacity regardless of price.

“I wonder how they’re going to do that,” said David
Asbridge, president of NPK Fertilizer Advisory Services in St.
Louis, Missouri. “If BHP comes in and decides to turn those
plants on full bore and let them run, then it’s going to be up
to Mosaic, Agrium and the Russian producers (to scale back).

“You could end up with a situation where we could see the
cost of potash being $50, $75, $100 a tonne cheaper than it is
right now.”

Potash is a key crop nutrient that analysts see becoming an
even hotter commodity as the world’s food needs grow. Its price
peaked over $1,000 a tonne in the commodities boom of 2007-08,
but has since fallen back to between $350 and $375 per tonne.

Asbridge said a possible combination of eastern European
producers Belaruskali, Silvinet and Uralkali (URKA.MM: ), could
help calm price volatility if BHP opens production floodgates.

“It would put a little more restraint in the world system,”
he said.

There is no global shortage of potash, but it is expensive
to mine and a small number of producers dominate the market.

In the 1970s and ’80s, Canadian potash producers expanded
too fast, keeping the nutrient stuck in a low $150 to $200 per
tonne range for many years, Asbridge said.

Today’s higher demand comes as Potash, Mosaic and Agrium
expand their existing Canadian mines, adding to both costs and
supply.

Patricia Mohr, commodity market specialist at Scotiabank
Group in Toronto, said some type of production curbs will be
needed to support prices, even if demand rises as expected.

“The new capability requires much higher prices than what
we have today to make it a worthwhile investment. You can’t
just flood the market,” she said.

BHP’s hostile takeover bid comes as U.S. farmers turn back
to applying fertilizer after balking last year at high-priced
applications to replenish their soil, Mohr said.

“They really mined the nutrients out of their soil last
year… But the demand for potash will start improving a lot
from here on in.”
(Editing by Janet Guttsman)

BHP takeover could shake up potash pricing control