Belarus poised to upend 'paralyzed' potash market once again
During the last week of July, Uralkali blasted the global potash market wide open sending stock prices in the sector tumbling.
Fast forward two months and the full effects of the breakup of the Russia-Belarus oligopoly that controlled more than 40% of world exports have still not been felt.
Uralkali CEO Vladislav Baumgertner's move was supposed to move potash from a clubby system of tightly controlled global supply and set prices to an open market where volume and cost-based pricing is key.
But is that really happening?
Wayne Brownlee, Potashcorp's finance chief summed up the current state of the potash market in a presentation to investors last week:
"What is interesting is there was the lion's roar with the announcement, and then there was the market behavior afterwards, and they weren't the same.
"So really what we've seen in the last month is we have seen very little volume move. In the offshore market, volume has been essentially paralyzed. To the extent that there is any volume, it's moving on contingent pricing.
"But we haven't seen aggressive market moves by anybody."
The market paralysis may not continue much longer.
Uralkali's market value and those of the North American big three producers have not recovered, but the biggest impact have been on the Belarus Potash Company or Belaruskali.
The state-owned firm accounts for 20% of the ex-Soviet republic's annual budget and with no product moving it is also robbing the struggling Belarus economy of much-needed foreign currency earnings.
On top of that Belarus is struggling to repay a $3.5 billion IMF loan and Belaruskali itself is being forced to reschedule debt while idling two of its four mines.
Russia's Vladimir Putin and Alexander Lukashenko, long-time dictator of the close Kremlin ally, were in talks about the potash problem on Monday.
Lukashenko last week also opened the door for the release Baumgertner, who is still languishing in a Minsk jail.
A deal appears to be close and could involve Russia buying a direct stake in Belaruskali in exchange for bailing out the company (and by extension the country).
It has happened once before. In 2011, when Belarus was also in dire financial straits, the country sold its stake in a gas pipeline to Russian's Gazprom for $2.5 billion.
It is hard not to see a return to the old system. As one analyst told FT.com (paywall):
"Exiting the cartel never made sense. It didn’t make sense then and it doesn’t make sense now. It was such a perfect set-up for producers. People don’t tend to self-destruct intentionally."