Potash set to plummet as Uralkali abandons cartel

Potash prices look set to tumble from their current level of around $400 per tonne after the world's leading producer, the Russian firm Uralkali, pulled out of a production cartel that it had been running with the Belarus-based Belaruskali. This cartel previously controlled around 40% of the global market, giving it massive control over prices.

Uralkali, which claimed the move was in response to Belaruskali making potash sales outside the two firms' marketing joint venture, has already said it will increase production to full capacity. The firm's chief executive, Vladislav Baumgertner, expects prices to fall as low as $250 per tonne in response, he told Russian newspaper Vedomosti. The move, which the FT likened to "Saudi Arabia pulling out of Opec", sent shares tumbling in potash companies around the world.

But while the predicted price falls are clearly bad news for firms, consumers will feel differently. The Wall Street Journal thinks that the end of the agreement should "give some US farmers a boost from lower fertilizer prices". Indeed, experts estimated that savings could amount to as much as $10 an acre in production costs. In turn, this will "eventually show up in small ways in the supermarket", in the form of lower food prices. The FT notes that the Chinese should also welcome this since they have been extremely critical of the power wielded by producers.

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However, while prices may well fall over the next couple of years, they seem likely to bounce back in the longer run, as producers postpone or even abandon mining projects. The first victim may be a £1bn project in Whitby, which risks becoming "another Yorkshire mining story consigned to the history books", says Garry White in The Daily Telegraph.

Experts also think that BHP Billiton may drop a much larger mega-mine project in Canada. Overall, Uralkali's decision should quickly lead to a tighter market "as expansions are delayed and demand is restimulated", say analysts at Liberum Capital. As a result, the firm expects prices to rebound to around $400 per tonne in the medium term.

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