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In recent weeks, a considerable amount of investor attention has been focused on the public break-up of the potash marketing arrangement between Russia's Uralkali and Belarus' Belaruskali. With the termination of this arrangement, Uralkali has stated plans to ramp up its potash production next year and issued a warning that potash prices could drop significantly as a result. Faced with headlines screaming about the end of the global "potash cartel," investors headed for the exits and the valuations of global potash companies declined accordingly.
While we are not downplaying the potential fallout from the abandonment of the joint venture that is commonly referred to as BPC (Belarusian Potash Company), we believe the real issue facing the potash industry is much more fundamental in nature. Specifically, global potash demand has not grown as expected, which is creating a number of issues for the industry.
In our opinion, many of the issues currently facing the potash industry could be easily resolved by modest demand growth over time.
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