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For the potash industry, this would change everything.
If Russian producer OAO Uralkali follows through on its plan to max out production and collapse one of the sector’s two trading arms, the industry’s oligopoly-like business model is thrown out the window.
The days in which the potash producers withheld production to maintain pricing influence could break down completely. Instead, experts said the stage would be set for a dramatic battle for market share, with the companies running at much higher production capacity and selling far more product. Higher supply would mean lower prices, greater competition and a culling of higher-cost producers and eager new entrants.
In short, the potash business would start to resemble a normal commodity business. BMO analyst Joel Jackson called it “the end of the potash world as we know it,” which is no exaggeration.
Markets were rattled at that prospect. Shares of every potash producer in the world plunged on Tuesday as investors absorbed the idea of global prices falling by US$100 a tonne or more. Continue Reading →