Ending potassium war will not lead to potash cartel being restored within BPC

On November 21^st, Uralkali CEO Vladislav Baumgertner was extradited to Russia.

Uralkali’s divorce from Belaruskali improved its performance. Changes in the shareholder structure were the formal reason for Baumgertner’s extradition to Russia. Only agreement at the highest level can result in coordinated efforts of Belarus and Russia on the potash market. If cooperation resumes within Belaruskali, conditions for Belarus will be worse than those before the conflict.

Uralkali’s performance improved after the split with Belaruskali in July 2013. In Q3 2013 the potash production volume was 2.7 million tons, which is 5% more than in Q3 2012. Preliminary data for October shows that this trend will persist.

In Q3 2013 Belaruskali produced 1.4 million tons of potash, which is 33% less than in Q3 2012. In October 2013 Belaruskali produced 458,000 tons of potash, which is half of Uralkali’s production in October. In 2014 Uralkali plans a production growth of up to 12.5 million tons. Belarus projects potash exports at 7 million tons, and circa 1.5 million tons for domestic consumption.

On November 18^th, Mikhail Prokhorov’s Onexim Group announced the acquisition of a 21.75 % stake in Uralkali from the Suleimanov-Kerimov Fund. The sum of the transaction is not disclosed, the deal will be closed in the next two months. Changes in the shareholding were one of Belarus’ requirements for a compromise solution to the conflict. On November 21^st, Baumgertner was extradited to Russia. Belarus’ claim to compensate USD 100 million in damages was not satisfied.

Baumgertner’s return to Russia closed the ‘potash’ conflict. At the highest political level, Uralkali might be pushed towards reconciliation with Belaruskali, which may increase potash prices. In this respect, interests of both companies coincide. However mutual cooperation is unlikely on other issues. Current production patterns show different performance results by the two companies. There is no longer any need for Uralkali to coordinate its supplies with Belarus; it manages to raise long-term loans for up to 14 years, to close large contracts and to operate freely in all markets. Belaruskali is unable to supply to the U.S. markets and to some other countries due to the U.S. sanctions.

The potash cartel’s divorce demonstrated which side benefited the most from its existence. Due to a shortage of foreign currency proceeds, Belarus might initiate reconciliation, however Russia might only agree to this on the condition of full domination in the future joint trader.