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In aftermath of cartel breakup, potash prices slide

Potash prices may go down further if BHP Billiton goes ahead with plans to build its Jansen mine in Saskatchewan.

POTASH CORP. OF SASKATACHEWAN

Spot prices for Canada's potash exports may have eased, an indication of a softer market following the breakup of a Russian-Belarusian industry oligopoly last month.

Prices for spot shipments of the crop nutrient from Port Metro Vancouver recently slipped $20 (U.S.) to less than $400 a tonne, while there are preliminary signs of market softness elsewhere, including slightly discounted potash prices on rail shipments to China, Patricia Mohr, vice-president and commodity market specialist at Bank of Nova Scotia, said in an interview Thursday.

Russia's OAO Uralkali announced on July 30 it was abandoning Belarusian Potash Co., a joint venture with rival Belaruskali of Belarus and one of the two largest marketing groups for potash, a mineral used on farms to boost crop yields. Analysts have warned that increased competition following the breakup would lower potash prices by late 2013.

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"We can't be too precise about forecasts because there are a variety of different kinds of prices to different buyers, and some of them are spot and some of them are contract," Ms. Mohr said. However, she added that the stage has been set for lower potash prices over the next six months, perhaps trading around $350 a tonne in early 2014.

Some analysts have said potash prices will decrease almost 20 per cent between now and next spring, perhaps falling roughly to a range of $325 to $350 a tonne, depending on the contract and region.

"There aren't many pricing data points in the system, so we don't know the magnitude of the fall yet, and we don't know the competitive response yet," BMO Nesbitt Burns Inc. analyst Joel Jackson said Thursday. "There is ambiguity. We have buyers around the world, waiting to see where potash prices will go."

Ms. Mohr at Scotiabank said she doubts sales contracts to China and India will tumble below $300 a tonne because as prices soften toward $350, some buyers will be tempted to place orders.

Potash Corp. of Saskatchewan, Mosaic Co. and Agrium Inc. comprise Saskatoon-based Canpotex Ltd., Canada's export marketing group for potash. Production and sales discipline practised by members of Canpotex and Belarusian Potash, while it was intact, could ensure price stability because the two marketing groups controlled almost 70 per cent of global potash supplies.

No one at Canpotex was available to comment on current potash export prices.

Potash prices won't likely plummet overnight because it will take some time for Uralkali to ramp up output as it looks to capture market share as a low-cost producer that will sell potash at lower prices than its rivals. Uralkali has predicted that its decision to go it alone could mean potash prices will tumble roughly 25 per cent. Some analysts expect a price war in the industry, at least in the short term.

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Prices may be weighed further in the long term if BHP Billiton Ltd. goes ahead with what would be the world's largest potash project. BHP announced this week that it will invest $2.6-billion over the next three years to build its Jansen mine, located 140 kilometres southeast of Saskatoon.

While BHP favours producing large volume at low cost, the Melbourne-based mining giant still needs higher potash prices to make the Jansen project economically viable. New mining operations require potash prices of at least $450 to $500 a tonne to justify multibillion-dollar investments, Ms. Mohr said.

Even though BHP has yet to approve the final stage to produce potash, the prospect of a new mine adding up to 10 million tonnes of annual production to the market has fuelled concerns that Canpotex will have lessened pricing power over the long run.

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About the Author

Brent Jang is a business reporter in The Globe and Mail’s Vancouver bureau. He joined the Globe in 1995. His former positions include transportation reporter in Toronto, energy correspondent in Calgary and Western columnist for Report on Business. He holds a Bachelor of Commerce degree from the University of Alberta, where he served as Editor-in-Chief of The Gateway student newspaper. Mr. More

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