Potash Corp. Says Uralkali-Belarus Dispute Won’t Last

Potash Corp. of Saskatchewan Inc., the largest North American producer of its namesake fertilizer, said it doesn’t expect a dispute between two producers in the former Soviet Union to last and that forecasts of a price slump are overdone.

Chief Executive Officer Bill Doyle said yesterday the duration of the disagreement between Russia’s OAO Uralkali and its Belarusian rival will be “shorter rather than longer.”

The comments were his first since Uralkali last week quit Belarusian Potash Co., a marketing venture with Belaruskali. Shares of potash producers around the world plunged after the Russian producer said it will start selling the crop nutrient freely in the market for the first time in eight years.

“Logic tends to prevail,” Doyle said in a interview broadcast live on the company’s website. “I don’t find too many people who self-destruct intentionally.”

Uralkali CEO Vladislav Baumgertner said last week his company objected to Chinese potash sales by Belaruskali outside of their BPC venture. He said the price of potash, which helps strengthen plant roots and improve resistance to drought, may now plunge to less than $300 a ton as Uralkali moves to full production to gain market share. The last potash supply agreement between BPC and China was at $400 a ton.

Photographer: Daniel Acker/Bloomberg

Bill Doyle, president and chief executive officer of Potash Corp. of Saskatchewan Inc., said the company won’t follow OAO Urakali’s new strategy of putting volume before price. Close

Bill Doyle, president and chief executive officer of Potash Corp. of Saskatchewan Inc.,... Read More

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Photographer: Daniel Acker/Bloomberg

Bill Doyle, president and chief executive officer of Potash Corp. of Saskatchewan Inc., said the company won’t follow OAO Urakali’s new strategy of putting volume before price.

Previous Disagreements

Until last week, BPC and Canpotex Ltd., the group that represents the largest North American potash producers, have dominated global supply by representing their members in export pricing negotiations. That has meant that the producers in each group don’t compete against each other in most export markets.

Canpotex, a Canadian company, has an explicit exemption under Canada’s Competition Act allowing it to operate.

Doyle, 63, said yesterday there have been disputes between the Russian and Belarusian companies before and that he sees no changes at Canpotex. Saskatoon, Saskatchewan-based Potash Corp. won’t follow Urakali’s new strategy of putting volume before price, he said.

“We suspect that price will at some point become more important than volume too, but Uralkali’s comments have already dramatically reduced the credibility of business as usual, or of a quick recovery in the stocks,” Mark Connelly, an analyst at CLSA Americas LLC in New York, said in a note.

Canada’s Agrium Inc. (AGU), which together with Potash Corp. and Mosaic Co. of the U.S. controls Canpotex, said yesterday that Uralkali’s strategy “has added to uncertainty” in potash.

Photographer: Geoff Howe/Bloomberg

A mill operations superintendent inspects potash in a warehouse at Potash Corp. of Saskatchewan Inc.'s facility in Lanigan, Sasketchewan, Canada. Close

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Photographer: Geoff Howe/Bloomberg

A mill operations superintendent inspects potash in a warehouse at Potash Corp. of Saskatchewan Inc.'s facility in Lanigan, Sasketchewan, Canada.

Possible Downgrade

“Time will be needed to evaluate how global producers and customers are likely to respond and what the implications are,” the Calgary-based company said in its earnings statement.

The after-effects of Uralkai’s move continue to buffet potash producers. On Aug. 6, Standard & Poor’s Ratings Services cut its outlook on Potash Corp.’s A- debt rating to negative from stable. A day earlier, it put Uralkali’s BBB- rating on watch for a possible downgrade to junk.

Germany’s K+S AG (SDF), Europe’s largest potash producer, on Aug. 6 abandoned its full-year profit forecast. Israel Chemicals Ltd. (ICL), 14 percent owned by Potash Corp., already has a strategic plan to explore options for increasing potash production, CEO Stefan Borgas said yesterday.

Recent events also may threaten the viability of BHP Billiton Ltd. (BHP)’s planned Jansen potash mine in Saskatchewan, said Evy Hambro, manager of BlackRock Inc.’s $7 billion World Mining Fund.

Jansen Project

“The overwhelming view right now on that project is it doesn’t make sense,” Hambro said yesterday in an interview on Bloomberg Television.

Jansen’s estimated construction cost is about $16 billion, according to Citigroup Inc.

“We think that the market is likely to evolve into more of a free market and be less driven by what some would call cartels,” BHP CEO Andrew Mackenzie said yesterday in an interview. “We continue to take an interest in Saskatchewan because we believe we have some great ore bodies there and it’s also part of our diversification strategy.”

Potash production capacity at Canpotex’s owners accounts for about 38 percent of the global total of 66.4 million tons, according to Barclays Plc.

Potash Corp. rose 2.1 percent to C$31.50 at 11:14 a.m. in Toronto. The shares have dropped 19 percent since Uralkali said July 30 it was quitting BPC.

Prices for potash have fallen in the past year on plentiful producer inventories and historically low import volumes in India. Potash Corp. said it sold potash for an average price of $356 a metric ton in the second quarter, compared with $433 a year earlier.

The price for delivery at Vancouver’s port has fallen to $410 a ton, 19 percent less than a year earlier, according to data from Green Markets, a fertilizer-industry information provider that is a unit of Bloomberg LP, the parent of Bloomberg News.

Potash producers in Canada and the former Soviet Union accounted for 56 percent of world supply last year, according to Green Markets.

To contact the reporter on this story: Christopher Donville in Vancouver at cjdonville@bloomberg.net

To contact the editor responsible for this story: Simon Casey at scasey4@bloomberg.net

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