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It's just one damn thing after another in the fertilizer business. Uralkali, the world's biggest potash producer, pulled out of a marketing arrangement last month that had put a floor under the commodity's price for eight years. On Monday, Vladislav Baumgertner, Uralkali's chief executive, was detained in Belarus (Uralkali's jilted partner was its Belarusian sister company). It appears that the potash sector is not about to return to the status quo ante. This has far-reaching earnings and valuation ramifications.

Uralkali's decision to walk away from its marketing arrangement (read: cartel) with Belaruskali was an attempt to up-end a longstanding price-over-volume strategy. As one of the lowest-cost producers, Uralkali has a lot to gain by ramping up production. Mr. Baumgertner said (before his detention in Minsk) that he expected the price of a ton of potash to fall from $400 (U.S.) to $300 by the end of this year as a result of the collapse of the cartel.

The immediate hit to valuations from Uralkali's move looks to be over. Shares of Germany's K+S, one of the highest-cost producers of potash, fell as much as 40 per cent; Potash Corp. of Saskatchewan Inc. was down nearly a quarter, as were Uralkali's London-listed shares. But they have recovered a bit: K+S is up 20 per cent from its lows. But given that earnings are tied to the potash price, and that the potash price may already be starting to subside, that recovery looks a bit premature.

Potash producers need to re-examine the business case for big new projects. K+S is developing the Legacy project in Saskatchewan; the company insisted at its half-year results that it was on schedule. BHP Billiton Ltd. is spending $2.6-billion to take development of its Jansen project, also in Canada, a step further. And Brazil's Vale SA is looking for new production sources.

The likely fall in the price of potash – a low-margin, bulk product – will hit earnings, which will hurt the ability to fund large projects. It is one more reason for commodity producers to be more careful about spending their shareholders' money.

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Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 28/03/24 7:00pm EDT.

SymbolName% changeLast
BHP-N
Bhp Billiton Ltd ADR
+0.28%57.69
VALE-N
Vale S.A. ADR
+0.16%12.19

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