Potash Miners: OPEC of Fertilizer

Source: Bloomberg, Yuriy Humber and Maria Kolesnikova (10/14/10)

"It's a classic oligopoly."

The world's largest potash miners, whose control over output already exceeds that of OPEC over oil, are poised to tighten their grip on the industry even further.

With the global population growing by 75 million a year, food demand will put further strain on harvests, increasing the need for fertilizer. Consolidation among producers of potash, a form of potassium used to boost crop yields by helping plants withstand dry conditions, has set off alarms with the big importers. "India has limited land to support a large population and any attempt to monopolize and increase fertilizer prices would affect productivity," says U.S. Awasthi, managing director of the Indian Farmers Fertiliser Cooperative (IFFCO). "Food prices will go up."

A fivefold surge in potash prices in 2007 and 2008 led to at least eight class actions filed in U.S. courts by farmers and farm suppliers against the leading producers over alleged collusion, a claim the producers deny. (The suits are ongoing.) Potash was among the last commodities to plunge in the global recession. Prices hit a record of about $1,000 a metric ton for spot deliveries in 2008. They have since fallen to as low as $350.

The mergers could increase the clout of the trading companies that market and ship potash on behalf of most of the world's producers.

While OPEC's 12 members hold 70% of proven crude reserves, Canada, Russia, and Belarus have 80% of the world's potash. "It's a classic oligopoly," says Barrie Bain, director of Fertecon.

The countries that rely heavily on potash are figuring out their response to the increased concentration in the industry.

"The risk of sovereigns getting involved and building big mines is real," says Xavier Majic of Passport Management, a San Francisco-based fund. "There are assets out there big enough to disrupt this industry."

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