BHP takeover could shake up potash pricing control

Fri Aug 20, 2010 5:57pm EDT
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By Rod Nickel and Euan Rocha

WINNIPEG/TORONTO (Reuters) - BHP Billiton's entry into the potash industry through a bid for market leader Potash Corp could shake up a cozy system of pricing and production if, as some expect, the newcomer shuns existing arrangements and runs plants at full capacity.

A coterie of companies dominates the global trade in potash right now, using their clout to underpin prices when they are low and take advantage of a strong market when they are high.

The two big exporters are Canada's Canpotex, controlled by Potash Corp, Mosaic Co and Agrium Inc, and the Belarussian Potash Co, which groups eastern European producers. Canada, Russia, Belarus, Germany, Israel and Jordan account for roughly 90 percent of world supply.

BHP, for its part, has traditionally shunned such marketing groups, and runs plants at full capacity regardless of price. It said on Friday that if it is successful in taking over Potash Corp, it would ultimately look to pull out of Canpotex.

"BHP Billiton will work with the Canpotex shareholders in order to further understand existing agreements and establish the basis for a relationship that provides for continuous and undisrupted supply to export markets and ultimately permits BHP Billiton to market its potash independently," the company said in a filing with U.S. regulators.

The company said it would honor existing commitments and contractual arrangements Potash Corp has with Canpotex.

"If BHP comes in and decides to turn those plants on full bore and let them run, then it's going to be up to Mosaic, Agrium and the Russian producers" to scale back, said David Asbridge, president of NPK Fertilizer Advisory Services in St. Louis, Missouri.

"You could end up with a situation where we could see the cost of potash being $50, $75, $100 a metric ton cheaper than it is right now."   Continued...