India, China play key role to break potash cartel

India and China together played a significant role in busting a giant Russia-Belarus potash cartel. This move will benefit the importers of potash and ultimately the cultivators as it is likely to bring down its prices significantly.

How did India and China bring down the Russia-Belarus potash cartel?

The giant Belarusian Potash Company (BPC) venture, a cartel of Russia’s Uralkali and Belarus Belaruskali, accounted for 40% of global potash sales. The BPC had exclusive right to export Belarusian potash. Due to a significant control over the potash market, the cartel used to keep the prices higher by reducing the supplies in the event of fall in demands. Both the Russian and Belarus potash producers are now running at about 60% capacity utilisation.

In December 2012, the exclusive right of BPC was cancelled through a decree signed by Belarusian President Alexander Lukashenka.  Following this move, the cartel collapsed after the Russian partner walked out of the marketing venture.

It was Indian and Chinese potash importers that prevailed upon the Belarus leader to sign the fateful degree. The Indian and Chinese importers convinced Mr. Lukashenka that Belarus could earn more if it marketed its potash on its own, rather than through the joint arrangement with Russians. Potash exports in Belarus contribute 6-10% to budget revenues, and Mr. Lukashenka wanted to increase the share at a time when the Belarus is struggling in deep crisis.

How would the busting of Belarusian Potash Company (BPC) venture help?

The breaking of Russia-Belarus potash cartel is likely to push the Uralkali to switch to volume-over-price strategy, which could lead to a 25% drop in world prices. It is expected that the potash price will fall below $300 a tonne after the change in company’s trading policy. The price now stands at about $400 a tonne. At the same time, India and China, the two world’s largest importers of potash, stand to reap benefits from the price fall.

Month: Current Affairs - August, 2013