China’s potash deal with Russia threatens Canadian profits – by Carrie Tait (Globe and Mail – September 25, 2013)

The Globe and Mail is Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous influence on Canada’s political and business elite.

CALGARY — China has bought a chunk of one of the world’s largest potash producers, giving the Asian country more control over what price it should pay for the fertilizer – a move that could drag down prices for the mineral and eat into profits for Canada’s potash companies.

China Investment Corp., Beijing’s sovereign wealth fund, agreed to acquired a 12.5-per-cent stake in Russia’s OAO Uralkali. 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.

Companies controlled by Beijing have invested billions of dollars as part of an overall strategy to secure energy supplies as well as basic manufacturing and building materials. In Canada, Chinese oil and gas companies, along with CIC, are significant energy players. CIC’s deal with Uralkali fits the recent Chinese model: Invest in resources in order to secure supply and exert some control over prices.

China is the world’s most populous country and largest potash consumer, and its stake in Uralkali could hurt Canada’s fertilizer producers because they could further lose pricing power.

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.

“If they are an owner and a buyer, it will probably moderate some of the price spikes,” said Laura Lau, a senior vice-president at Brompton Funds in Toronto. “It is not good for Canada, that’s for sure.”

Uralkali’s biggest rival, Potash Corp. called China’s purchase a “non-event” without direct implications for potash sales.

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