Why Fertilizer Stocks Sank 20% Yesterday
Together, Russian Uralkali and Belarusion Potash Co. control 70% of the world's potassium-based fertilizer supply. That is, until yesterday.
A Cartel Severed
The global supply of potash has long been controlled by two cartels who have worked together to set a floor price to help fertilizer companies. The larger cartel, made up of the Russian Uralkali and Belarusion Potash Co, or BPC, controlled approximately 70% of the world market, until yesterday.
Uralkali announced that it would be severing ties with BPC after the firm lost its exclusive right to export Belarussian potash and began completing side deals beyond Uralkali. The Russian firm had this to say on ending its partnership with BPC:
Uralkali did note that it would willing to work with BPC in the future under mutually beneficial terms. But for now, the firm will circumvent BPC and it will cost the global market dearly. Uralkali expects for the global price of potash to sink more than 25% by the year end to around levels of $300 per ton. The company’s stock had to be halted during Tuesday trading in Moscow after dipping more than 20%.
We have repeatedly informed our Belarusian partners that such actions were unacceptable and they have ultimately destroyed the fundamentals of our prolonged fruitful cooperation. In this situation we have to re-direct our export deliveries through our own trader.
One Man’s Trash …
Because the supply for Potash has long outpaced the demand for the product, cartels stepped in to set a floor for prices. Now that Uralkali has terminated its partnership with BPC, consumers will have more bargaining power because there are more producers in competition with each other, as opposed to two cartels who had worked together. This will allow for consumers to get the product for much less and ultimately puts the power of the industry in their hands, a welcomed change for many.
Farmers and others who have been forced to buy potash at elevated prices will finally be able to cut down costs and possibly purchase more potash in order to grow more crops. China and India, which are among the world’s largest consumers, had long been resistant to the artificially high prices and will be the biggest beneficiaries of cheaper potash.
Below, we take a look at how some of the world’s largest fertilizer securities fared in yesterday’s trading:
|Potash Corp (POT)||The Mosaic Company (MOS)||Fertilizers/Potash ETF (SOIL)|
|Average Daily Volume||5,408,900||3,266,210||27,305|
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Editor's note: This article by Jared Cummans was originally published on Commodity HQ.