The future of Canpotex's proposed potash export terminal on Ridley Island became more uncertain last week as one of two major global potash cartels appeared on the verge of crumbling.
Russian firm OAO Uralkali announced its intention to pull out of the Belarusian Potash Co. (BPC) which, along with Canpotex of Saskatchewan, controls approximately 70 per cent of the potash supply in the world. In the past, Uralkali and its Belarus partner, Belaruski, had withheld some of its production capacity from the market in order to keep prices high but, in announcing its intention, Uralkali said it planned to begin selling its full production capability of 13 million tonnes into the market.
The effect, some experts project, is a 25 per cent drop in potash prices from $400 to $300 per tonne as supply begins to meet demand. The result would be a hard hit to pocketbook of producers and University of British Columbia economics professor James Brander said that type of a hit puts any major project in question.
"Normally this kind of situation would reduce the incentive for undertaking new investments. Sooner or later the price of potash will recover, but in the short run I would not expect much in the way of new investments," he said, noting raising money through the sale of stocks that have dropped would also be more difficult.
"Day-to-day operations should continue more or less as before, but new investments would be less attractive."
In a televised interview with Bloomberg, Uralkali CEO Vladislav Baumgertner acknowledged the move could hurt the potash industry as a whole.
"We don't exclude that potash prices might go down, and this will prevent new greenfield projects from [being built] in the potash industry. Or the companies that own those greenfield projects are going to waste huge amounts of money," he said.
Representatives from the potash industry in Saskatchewan, including from Canpotex parent companies Agrium, Potash Corp. of Saskatchewan and Mosaic, cautioned against overreaction to the news and said this was not the first time the prospect of dissolving BPC has arisen.
"I think every potash producer has some concerns. They have made some bold statements and predictions, so it has raised concerns any time stock valuations have taken a hit like that. But we don't know what, if anything, will happen," said Richard Downey, vice-president of investor and corporate relations for Agrium, noting any impacts to the company remain to be seen.
"We don't know exactly what their true intentions are other than they've announced plans to split up in terms of marketing."