Russia/Belarus: Potash War Declared!

Chemicals , Commodities , Europe , Potash Aug 31, 2013 No Comments

Vladislav BaumgertnerPotash is produced worldwide at amounts exceeding 30 million tonnes per year, mostly for use in fertilizers. In 2013, almost 70% of potash production was controlled by two cartels, Canpotex (Canada) and the Belarusian Potash Company (Russia/Belarus).

The latter was a joint venture between Belaruskali (Belarus) and Uralkali (Russia), but angered by a law passed in Belarus last year allowing Belaruskali to make sales outside the marketing venture, Uralkali quit the cartel on July 30, saying it would seek to maximize its own volumes. It warned that prices could fall as much as 25 percent this year to less than $300 per tonne.

On August 26th, Belarusian officials detained Vladislav Baumgertner, CEO of Russia’s Uralkali, as he was departing the Minsk airport after he was invited to the capital by the Belarusian Prime Minister. Baumgertner is charged with ‘abusing power’ as chairman of Belarusian Potash Company and causing damages of about $100 million.

The arrest has escalated the cross-border dispute between the two largest potash companies from the former Soviet Union. Russia hasn’t responded kindly to the detention, and Prime Minister Dmitry Medvedev has sworn to resolve the matter using all available means. “What happened today is beyond all bounds. We think this is a very strange situation, given the nature of our relationship,” Russia’s Deputy Prime Minister Igor Shuvalov said.

Uralkali’s spokesman Aleksander Babinsky described Monday’s arrest of the CEO as a ‘crude provocation of Belarusian authorities’ and is ‘appalled’.

Since then, Russian officials have announced a 25-per-cent drop in oil supplies to Belarus in September, threatened to extend the cuts for several months and hinted at possible restrictions on imports of Belarussian dairy products.

Russia’s veterinary regulator said the restrictions on hog and pork product imports had been imposed over concerns about African swine fever in Belarus and would not be lifted until the virus was wiped out or brought under control.

The moves could deal a significant blow to Belarus, a transit country for Russian oil and natural gas to Europe. Its economy, already in danger of collapse, is heavily reliant on agriculture and Russian oil supplies.

“Relations between Russia and Belarus seem to be delving to new lows and the expectation is that Russia will further ratchet up pressure on its neighbour via the trade channel,” said Timothy Ash, an analyst at Standard Bank in London.

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.

Top 10 potash producers - 2009

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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