These are stories Report on Business followed this week.
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A Moscow trader may have summed it up best this week when he told the Reuters news agency: "It is as if Saudi Arabia decided to leave OPEC – oil prices would fall immediately."
Renaissance Capital's Dmitry Ryzhkov was referring to the announcement by Russia's Uralkali that it was busting up one of the world's two potash cartels, a decision that shocked the markets.
There's some speculation that Uralkali is playing a game of chicken with its former partner in the cartel, Belarusian state-owned Belaruskali, on suggestions that the latter may have been operating outside of their agreement.
If it's a bluff, it's a big one. With sweeping ramifications that have already cost shareholders of other potash companies dearly.
The cartel, Belarus Potash Co., and North America's Canpotex control 70 per cent of the global potash export market, and traditionally have followed each other on major pricing deals.
But that support could now erode given Uralkali's decision to go it alone, and chase volume rather than price. Indeed, observers believe potash prices could sink by about $100 (U.S.) a tonne, to the $300 range from the current $400.
Which is why Potash Corp. of Saskatchewan, The Mosaic Co. and Agrium Inc., the members of Canpotex, were bloodied on stock markets this week.
"We believe potash earnings estimates will move materially lower, but industry multiples will likely lower too as investors question why potash producers still deserve historical premium multiples over diversified miners," said analyst Joel Jackson of BMO Nesbitt Burns.
"Our analysis is preliminary, but our initial bear case is that global price estimates could fall by $100/tonne (down closer to marginal European costs), which will impact all producers, though companies such as [Potash Corp. and Uralkali] have the most spare capacity to partially offset lower prices and might relatively fare the 'least worse.'"
The move also has ramifications for the Canadian prairie province of Saskatchewan.
"Even a price decline of 10 per cent to 15 per cent would leave a significant mark on the market and Saskatchewan," Toronto-Dominion Bank economists Jonathan Bendiner, Derek Burleton and Dina Ignjatovic said in a report examining the risks to the province.
Consider that potash accounts for about 2 per cent of the Saskatchewan economy, and that potash exports represent some 18 per cent of its overall exports.
Royal Bank of Canada believes the collapse of the Russian cartel could, in the end, slash Saskatchewan's economic growth by half this year.
The prospect of lower prices also puts a cloud over BHP Billiton Ltd.'s proposed $14-billion Jansen potash mine, at the same time threatening the Saskatchewan government's potash royalty revenues, pegged in the last budget at $520-million for the 2013-2014 fiscal year.
"A back of the envelope calculation that assumes a $300/tonne price for potash for the remaining eight months of the fiscal year implies royalty revenues coming in around $150-million below forecast," said Mr. Bendiner, Mr. Burleton and Ms. Ignjatovic, the TD economists.
"Government revenues will also be impacted through other nominal means," they said in their report.
"Taxation revenues for the current fiscal year would likely be lower, as both corporate profits and labour income would be adversely affected due to lower prices and reduced activity. Under this scenario, Saskatchewan's position as one of the few provinces in a surplus position would be put at risk."
BMO's Mr. Jackson said the "price-over-volume" model has been a boon to the industry, and thus it's "difficult to be comfortable" with Uralkali's decision to break up the cartel.
"There are many potential conspiracy theories: A shot across the bow to BHP, or more interestingly a high-stakes game of chicken to encourage Belaruskali to get in line," Mr. Jackson said.
"We will take Uralkali at face value for now."
- Potash shares crushed: Is Russian cartel dead, or is breakup a 'high-stakes' bluff?
- Russia's potash breakup a 'game-changer' for Canadian industry
- Potash cartel shift sends shivers through Saskatchewan
- Why breakup of Russian potash cartel is such a threat to Saskatchewan
- Scott Barlow in ROB Insight (for subscribers): Potash investors should have seen crash coming
- The explainer: Who's who in potash exporting
The week in Business Briefing
- Breakfast at Tiffany's, lunch at Target, dinner at Saks: The retail wars
- The fertilizer hits the fan: Why Canada's potash cartel has lost pricing power
- Potash shares crushed: Is Russian cartel dead, or is breakup a 'high-stakes' bluff?
- Facebook at IPO price: 'You don't want to short this stock any more'
The week in Streetwise (for subscribers)
- Saks deal makes Hudson's Bay REIT spinoff a near-certainty
- Saks isn't a stellar asset for HBC - but there's potential
- TD's real estate book hit by floods and severe weather
- How to beef up risk management
- Cheer up Bay Street, July was a good month
Economy Lab
- The Bank of Canada's new policy gap: Inflation
- Public safety must trump red-tape cutting
- Potash hit could cut Saskatchewan economic growth in half, economists say
- Canada's energy slowdown hurt GDP, but the sector will likely rebound
- Fewer break-ins? Turns out thieves are economists, too
The week in ROB Insight (for subscribers)
- Quebec and Newfoundland spat needs adult supervision
- Moody's fears HBC is stretching debt too far with Saks deal
- Potash investors should have seen crash coming
- The theory behind the U.S. gasoline price drop
- Why I'm buying mining company debt
Required reading
Cities across the United States are taking a hard look at their vulnerabilities in the wake of Detroit's historic bankruptcy, Joanna Slater reports from New York. There's good and bad news in that.
CentriLogic, one of Canada's biggest independent data centre operators, says it's earmarking up to $40-million for acquisitions. This comes amid an unprecedented wave of consolidation, Rita Trichur writes.
Attracted partly by a stable economy and more buying opportunities, foreign investors are increasingly snapping up stakes in Canadian hotels, Tara Perkins reports.
Richard Baker's deal to bring Saks Fifth Avenue into the Hudson's Bay Co. fold sets the stage for a high-end retailing battle with rival Holt Renfrew & Co., Marina Strauss writes.
Telus Corp. is taking the Canadian government to court over its wireless policy, arguing Ottawa has unfairly disrupting investment plans by changing the rules governing the transfer of spectrum licences between carriers, Steven Chase and Rita Trichur write.
Alberta's energy industry has gone from battling a bitumen bubble to grappling with a gas gap. Jeffrey Jones examines the discount on the province's natural gas that threatens fresh cuts in drilling activity and production levels.
In the Canadian smartphone market, 2013 may well be remembered as the year when the consumer love affair with high-end devices finally began to cool, Omar El Akkad writes.
TransCanada Corp. is pushing ahead with a $12-billion plan to ship 1.1-million barrels of western crude a day to eastern Canada, and joining with Irving Oil Ltd. to build a new deep-water export terminal off Saint John, N.B., Shawn McCarthy and Jane Taber report.
Stung by massive writedowns and outsized losses, Canada's big miners are rewriting the playbook and penciling in new metals price assumptions. Tim Kiladze looks at Barrick and Kinross.
- Barrick Gold hit by whopping loss of $8.6-billion, slashes dividend
- Gold slide takes $2.4-billion toll on Kinross
The Federal Reserve expects U.S. economic growth to speed up, an indication it remains poised to begin slowing its monthly bond purchases this year, Kevin Carmichael writes.