The potash cartel comprises Canpotex – a partnership between Potash Corp. of Saskatchewan (POT), Agrium Inc. (AGU) and Mosaic Co. (MOS) – besides three Russian and one German producer. Together, they account for 75% of the global potash capacity.

The price of potash – an essential crop nutrient – remained obstinately higher on top of falling demand. The fertilizer cartel had deliberately curtailed production to keep pricing unaffected. About 40% of the global potash production capacity has been idled since the second half of 2008.

Canpotex has succeeded in maintaining its price level recently by signing contracts with customers in Japan, Korea, and Taiwan covering shipments for the second quarter of 2009. The new contract is priced at about $700 per ton.

However, fears had spread that the cartel may no longer be able to sustain its price control given the current market conditions. Farmers were keen to know how the cartel resolves its pricing negotiations with the largest overseas potash buyers such as China and India.

The Russian producer settled with India at a price of $460 a ton, much lower than $625 a ton last year. Speculation is rife that the contract price may fall further, cutting a deep wound in the bargaining strength of potash superpower.
 
We continue to recommend POT and AGU as Hold.

Marina Akopian, a partner at London-based emerging markets boutique Hexam Capital (a joint venture with Resolution Asset Management) says: 'Prices bear little or no relation to results, with sellers getting rid indiscriminately of winners and losers.' She cites potash producer UralKali, whose share price is down some 70 per cent over three months despite first-half revenue growth of 114 per cent and net income up 261 per cent year on year. 'The plunge would not have been so steep had the government done some more explaining,' says Igor Yurgens, head of government relations at Renaissance Capital, Russia's largest privately owned investment bank. 'It needs to be more open about its medium and long-term strategy - if it has one.' But this is Russia and the politics of defence are never far away. Yurgens's biggest fear is a US election result that will lead to more hardliners in Washington. 'If Nato offers quick accession to Ukraine in December there could be big trouble, making the current Georgia problem seem like a joke. We have this power, though we don't want to use it. But if there is no anti-Russian provocation, I expect the markets to start rising gently by Christmas.'