Potash war, round 2: China gains 12.5% stake in Uralkali

Chemicals , Commodities , Europe , Potash Sep 25, 2013 No Comments

UralkaliChina‘s sovereign wealth fund (CIC) has acquired a 12.5 percent stake in Uralkali, the Russian fertilizer giant currently embroiled in a highly politicized dispute with its Belarusian counterpart, according to a statement released by Uralkali on Tuesday.

Analysts said the Chinese government’s first direct investment in a producer of the soil nutrient often used in fertilizer follows a pattern of China’s acquiring direct control of overseas mineral companies to keep price and supply stable. As a result, it threatens the exports of other major producers to the Chinese market, including Canada’s Potash Corp. of Saskatchewan and Belarus state-owned Belaruskali.

The deal – a debt-for-equity exchange between CIC and a company owned by three Russian oligarchs – comes after Uralkali said it intends to break from Belarus Potash Co., the cartel it had with state-owned Belaruskali. Uralkali‘s equity market value is now $16.4 billion, valuing the 12.5 percent stake at about $2 billion. In Moscow, Uralkali shares rose 1.1 percent.

CIC’s investment in Uralkali gives Beijing a better idea of what would be a fair and competitive price for potash. Canpotex Ltd., the overseas marketing arm of Potash Corp. of Saskatchewan Inc., Agrium Inc. and Minnesota’s Mosaic Co., along with the crumbling joint venture between Uralkali and Belarus, have had tremendous influence over potash prices and supply as they control, collectively, 70 per cent of the world’s potash market.

President Vladimir Putin met his Belarussian counterpart, Alexander Lukashenko, Monday on the sidelines of a regional summit to discuss the matter after both sides said last week that Baumgertner could be released. Prosecutor General Yuri Chaika traveled to Minsk Tuesday, in a sign that a deal to extradite Baumgertner could be in the works, news agencies reported.

Both Minsk and Belarus would like to revive the sales alliance, which controlled two-fifths of the world market, but with China on board as a shareholder it may become harder in future to curb sales volumes to underpin contract prices.

China, which has few potash reserves of its own, has considered other measures of working its influence on the production of a nutrient which was, until the Belarus Potash Co. break-up, tightly controlled, with more than 70% of trade controlled by Belarus Potash Co. and its North American peer Canpotex.

Several state-owned Chinese companies, including Sinochem, three years ago mulled a bid for Canada’s Potash Corp., to rival a $39bn hostile offer from BHP Billiton, which foundered after failing to receive backing from Canadian officials.

Pascal Blanc

Pascal has implemented numerous software solutions in the areas of procurement, sourcing, spend management, supplier evaluation and performance. His clients include Fortune 500 companies in Europe, Asia and North America. He is a co-founder of Source & Procure.

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