The day it got personal in the potash market
A falling out between the Russian and Belarus presidents broke up a cosy cartel, writes Andrew Kramer.
Farmers in the US are getting an unexpected windfall from a contentious fight between Russia and Belarus, a former Soviet splinter state.
The subject of the fight is potash, a fertiliser. The score so far: one imprisoned Russian business executive, the disintegration of a cartel that kept world potash prices high, and political tension between the two countries.
What is being called the "fertiliser war" is the latest of numerous trade and economic spats between Russia and Belarus, whose leaders, though presiding over similar autocratic political systems, do not get along personally, Russian political analysts say. Alexander Lukashenko, President of Belarus, and Vladimir Putin, President of Russia, by most accounts detest each other. Their feelings have spilled over into the fertiliser business.
The potash problem reached a peak on July 30, when Uralkali, the Russian potash company, said it was withdrawing from an international cartel called the Belarusian Potash Co, or BPC, which was created to keep prices high.
Two marketing groups, BPC in the former Soviet Union and Canpotex in Canada, sell nearly all the potash in the world. BPC marketed fertiliser for Uralkali and Belaruskali, the Belarusian company, and Canpotex for three Canadian producers, Potash Corp, Mosaic and Agrium. For years, potash companies kept a thumb on the global trade of this critical plant nutrient, choking back supply to raise prices, much as the Organisation of the Petroleum Exporting Countries does with oil or De Beers with diamonds. The two cartels set nearly identical prices for potash worldwide, preventing farmers from benefiting from competition.
Uralkali said it was leaving BPC because the Belarus president had been allowing fertiliser sales on the side. It predicted potash prices would drop about 25 per cent, to $US300 ($322) a tonne, from about $US400 a tonne, when it left. The lower prices would hurt Russia, but they would hurt Belarus more.
Though Uralkali denies any direct link, this action followed years of efforts by Mr Putin and the Kremlin to compel Belarus to sell strategic assets such as oil refineries and natural gas pipelines, in exchange for subsidised energy supplies.
Mr Lukashenko first agreed to sell a stake in Belaruskali, though the potash mine provides about 10 per cent of the state tax revenue, but then baulked. He said it was still for sale, but cited an exorbitantly high price, angering Russian oligarchs who had been vying for it, and setting the stage for the break-up of the fertiliser cartel that followed.
The Belarusian government retaliated with what appeared to be a trap: the Belarusian prime minister invited the chief executive of Uralkali, Vladislav Baumgertner, to his country for talks on August 26, and then arrested him at the airport. Uralkali's chairman, Alexander Voloshin, and a part owner, Suleyman Kerimov, had also been invited, but only Mr Baumgertner showed up.
It was unclear whether the others stayed clear of Belarus because they had sensed a trap, or whether their schedules simply did not have room for the country's prime minister, which was the formal explanation both officials offered.
Mr Baumgertner was charged with "abuse of power", which carries a potential 10-year sentence.
Belaruskali, which is state-owned, has no public relations office. Calls were referred to Anatoly Makhlai, whose title is deputy director for ideology and cadres, who declined to comment.
Later, the Belarusian authorities issued arrest warrants for four other executives and Mr Kerimov, the part owner. Analysts say Mr Baumgertner is only being held as a hostage to compel the Russians to rejoin the cartel.
Outraged, the Russians responded with a flurry of trade restrictions, banning all Belarusian pork imports, ostensibly over health concerns.
Farmers and fertiliser companies are watching closely. Shares in Potash Corp rose this week on signals that reconciliation was near.
Reports indicated Mr Kerimov would sell his stake to another Russian oligarch more palatable to Mr Lukashenko or to the nickel mining company Norilsk, leading to a patching up of ties and the re-creation of the price-fixing cartel. But Norilsk said it had no plans to buy a stake. Shares in Potash Corp fell again.
Even by the standards of business practices in the former Soviet Union, these tactics appeared blunt. "This move is absolutely aggressive and abnormal," said Boris Krasnojenov, a mining analyst at Renaissance Capital, a Moscow investment bank, referring to the arrest of Mr Baumgertner. "The Prime Minister invited the CEO of a major company to a meeting and then arrested him."
The dispute has been detrimental to the profits of both Uralkali and Belaruskali - but wonderful for farmers from Idaho to India who have already benefited from lower fertiliser prices. Potash is one of three main plant nutrients, along with phosphate and nitrogen, and is used widely to increase corn and soybean yields.
New York Times
InvestSMART FORUM: Come and meet the team
We're loading up the van and going on tour from April to June, with events on the NSW central & north coast, the QLD mid-north coast and in Perth, Adelaide, Melbourne, Sydney and Canberra. Come and meet the team and take home simple strategies that you can use to build an investment portfolio to weather any storm. Book your spot here.
Want access to our latest research and new buy ideas?
Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.Sign up for free