Potash fight gets dirty

Chris Sorensen looks at the bitter dispute that weighs on Potash Corp. investors

The drab and dusty world of potash has never been more riveting.

Police in Belarus this week arrested the CEO of Russian potash giant Uralkali as he was preparing to leave the country after being invited to a meeting with the Prime Minister. Vladislav Baumgertner was detained at the airport in Minsk, where local TV footage showed him being handcuffed and surrounded by police. Now Russia is demanding that he be released immediately, calling the incident “way out of line.”

Baumgertner’s arrest, on charges of abuse of power, follows the recent falling out between Uralkali and state-owned potash producer Belaruskali, which together have been selling potash, a key ingredient in fertilizer, through a joint venture called Belarusian Potash Co., or BPC, since 2005. The arrangement is not unlike the one that exists in North America between Potash Corp. of Saskatchewan, Mosaic Co. and Agrium Inc. The two groups, BPC and Canpotex, had collectively controlled about 70 per cent of global sales, helping to push prices of the key resource up to nearly $900 a tonne several years ago.

Late last month, however, Uralkali announced it was leaving BPC in an apparent effort to pursue a volume-focused strategy. It blamed its partner for selling outside the agreement. Authorities in Belarus, meanwhile, charged that Uralkali has been trying to undermine the business relationship for its own gain.

The ugly commercial—and, increasingly, political— dispute has ramifications far beyond Eurasia. The breakup of BPC has analysts predicting global potash prices, now around $400 a tonne, could plummet by 25 per cent by year’s end. That, in turn, promises to further weigh on the minds of Potash Corp. investors. Shares of the former Crown corporation are already worth about half of what Australian giant BHP Billiton was prepared to pay for them back in 2010, when it launched a hostile takeover attempt. But the $40 billion deal was ultimately rejected by Ottawa amid concerns in Saskatchewan about losing control of a strategic resource.

While the long-term outlook for potash remains bullish, thanks to growing demand from developing countries, the bitter dispute between fellow producers half a world away makes it unlikely Potash Corp. shareholders will see those kinds of prices again any time soon.

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